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THE 

THEORY AND PRACTICE 
OF TAXATION 



BY 

DAVID AMES WELLS, LL.D., D.C.L. 

Author of Recent Economic Changes, Etc. 

LATE MEMBRE CORRESPONDANT DE L'iNSTITUT DE FRANCE ; 

CORRESPONDENTE REGIA ACCADEMIA DEI LINCEI, ITALIA J 

HONORARY FELLOW ROYAL STATISTICAL SOCIETY, ETC. 




New York 

D. Appleton and Company 

1900 



TWO COPIES RECEIVED, 

Library of &QHg*eg % 
Offlye of tb9 

MAR '0 1900 

tfegl«t»r of GapyrlghtSi 






56215 



Copyright, 1900, 
By D. APPLETON AND COMPANY. 



SECOND Cor»Y f 






TO 
MY FRIENDS 

CHAKLES NOEDHOFF 

AND 

GOEDON LESTEE FOED. 



,y J / 



NOTE 



Of Mr. Wells's writings on economic subjects nothing 
remains to be said. They have a position of their own, 
and have deservedly attracted much attention and high 
commendation at home and abroad. For many years he 
had in contemplation a work on taxation, which should 
contain the record of his own experience in practical con- 
tact with State and national tax systems, and of his studies 
and conclusions drawn from the history of taxation in 
other countries. Strong in critical ability and enjoying 
wide opportunities for obtaining material, he sifted the 
facts and theories with a view to combining the best of 
both into a volume which might serve as an account of 
existing tax methods and as an index or guide to a better 
system. Some of this material he used from time to time 
in connection with current discussion; but the greater 
part appears in these pages for the first time. It is unfor- 
tunate that he did not live to give the chapters their final 
form, but the work was practically complete when he laid 
down the pen. Certain matter was to be added to the 
historical section, and the criticism of national and State 
tax problems was to be extended, and new decisions of the 



vi THE THEORY AND PRACTICE OF TAXATION. 

courts incorporated. The last chapters, in which he de- 
veloped the law of the diffusion of taxes, were sketched by 
him, and embody the essence of the conclusion he had 
reached. Few changes have been made in the text, and 
for whatever errors have crept in the editor is responsible. 

WOETHINGTON" CHAUNCEY FOKD. 
Boston, November 27, 1899. 



CONTENTS. 



CHAPTER PAGE 

1 



Introduction 

I. — Recent tax experiences of the Federal Govern 

MENT OF THE UNITED STATES .... 



II. — The place of taxation in literature and history 62 

III. — Greece and Rome 85 

IV. — Taxation in the middle ages 100 

V. — Taxation in France and Mexico . . . .117 

VI. — Taxation in Egypt and Brazil 141 

VII.— Taxation in British India 158 

VIII.— Taxation in Switzerland 180 

IX. — The definition, object, and sphere of taxation . 197 

X. — Relation of taxation to the state .... 222 

XI. — Limitation on the instrumentalities of taxation . 247 
XII. — The sphere of taxation peculiar to the Federal 

Government of the United States . . . 268 
XIII. — Rules or maxims essential to an administration 

OF RIGHTFUL TAXATION UNDER A CONSTITUTIONAL OR 

FREE GOVERNMENT — PART I .... 284 

XIV.— Rules or maxims essential to an administration 

OF RIGHTFUL TAXATION UNDER A CONSTITUTIONAL OR 

FREE GOVERNMENT — PART II 305 

XV. — Nomenclature and forms of taxation — Part I . 330 

XVI. — Nomenclature and forms of taxation — Part II . 357 

XVII. — The existing methods of taxation — Part I . . 384 

XVIII. — The existing methods of taxation — Part II . . 398 

XIX. — The existing methods of taxation — Part III . . 418 

vii 



18 



viii THE THEORY AND PRACTICE OF TAXATION. 

CHAPTER PAGE 

XX. — Double taxation 438 

XXI. — What is property? 460 

XXIL— Taxation of choses in action 485 

XXIII. — The case of Kirtland vs. Hotchkiss . . . 493 

XXIV. — Theory and practice of income taxation . . 514 
XXV. — What should be taxed, and how it should be 

taxed 556 

XXVI. — The law of the diffusion of taxes . . . 569 

XXVII. — The best methods of taxation — Part I . . 603 

XXVIII. — The best methods of taxation — Part II . . 617 

Index 643 



THE THEORY AND PRACTICE 
OF TAXATION. 



INTRODUCTION. 

It is the purpose of the writer, in the chapters which 
follow, to discuss the principles of taxation from a broader 
basis and by different methods than have heretofore been 
attempted, special consideration being given to the experi- 
ence of the United States. 

Such a discussion primarily involves the inquiry, of 
how far the varied and curious experience of nations leads 
up through what may be regarded as a process of evolu- 
tion, to a recognition of the underlying and essential 
principles of a just and at the same time an efficient sys- 
tem of taxation. And it also necessitates, for the attain- 
ment of correct conclusions in the prosecution of such 
inquiry, that illustrations drawn from the world's great 
record of experience' should take precedence of theory, 
especially in the way of example and exhibit of the many 
abuses of the power of taxation which the ignorance of 
legislators and the cupidity of designing men have inflicted 
upon nations. 

The subject is one of transcendent importance, per- 
haps more universally important than any other that can 
invite public attention. Its discussion opens questions of 
the widest possible range. There can be no civilization 
without government, and no government without an ade- 
quate supply of revenue obtained from the persons and 
property of the people governed. There can be no health 
in the body politic without sound finance, and no sound 
finance without a sound system of taxation. In fact, 
taxation is to our body politic what blood is to the body 
physical: if healthy, infusing life and warmth; but if un- 

1 



2 THE THEORY AND PRACTICE OF TAXATION. 

healthy, the agent for producing discontent, decrepitude, 
and paralysis. 

The absence or existence of limitations on the power 
of a government to make compulsory levies on the prop- 
erty or persons of its people for its use or support, con- 
stitutes the dividing line between a despotism and a free 
government — a fact most pertinent to legal, economic, and 
societary studies which has attracted little attention. 

The methods and scope of what is called taxation 
regulate more than all other agencies the distribution of 
wealth, which is really the great question of the future 
to all nations. Ever since Adam Smith wrote his para- 
mount work on the Wealth of Nations the political econ- 
omists and students of social science have concerned them- 
selves mainly with the production of wealth. That prob- 
lem has been practically solved. Wealth is now produced 
with a rapidity that the world has never before supposed 
possible,* and the laws governing its production have be- 
come well understood by those who have made a special 
study of the subject. An inevitable result of this condition 
of affairs has been, that wealth produced under the greater 
control that man in general has obtained over the forces 
of Nature has aggregated itself, as it always will, in the 
hands of those whose faculties especially qualify them to 
obtain and manage it, and who, in common parlance, have 
received the name of " money-getters." These have be- 
come enormously rich, while the masses, whose material 
condition is also absolutely much better than at any former 
period of the world's history, are, however, relatively 
poorer. Improved instruments for transportation have 
greatly facilitated intercommunication, f and the oppor- 

* Recent investigations indicate that the absolute effective force 
available to the American people for the production of wealth 
is more than three times greater at the present time than it was 
in 1860. The outflow of British capital for investment in foreign 
securities and negotiated in London alone, during the eight years 
next previous to 1890, has been estimated by those best qualified 
to express an opinion, to have amounted to the large sum of 
nearly or quite $700,000,000 per annum. And this estimate does 
not comprise all the British capital loaned to foreign countries, 
but only such as was subject to public cognizance. 

f The number of people annually transported on the railroads 
alone in the United States exceeds many times the total population 



DISTRIBUTION OF WEALTH. 3 

tunity thus afforded for the observation of extreme con- 
trasts in individual conditions has operated as a very great 
factor in occasioning discontent among the masses, who, by 
reason of the never as yet fully tested experiment of univer- 
sal suffrage, have become, at least theoretically in the 
United States, the sole arbiters of the policy of their Gov- 
ernment and of the selection of the legislators who are to 
enact laws in conformity with such policy.* 

The problem of the acquisition of wealth having thus 
been solved, that of the proper distribution of wealth 
logically and necessarily follows, and the character of the 
measures which directly or indirectly involve what is 
called taxation for the attainment of such result, which 
seem to commend themselves to the people of the United 
States, is especially worthy of attention. These measures 
are indicated in part by the adoption of a pension system 
unlike anything of the kind ever known in history, and 
which necessitates an annual expenditure of money (raised 
by taxation) to meet the military expenses of the country 
— army, navy, and pensions — in excess of that entailed 
by the immense military establishment of any of the coun- 
tries of Europe, and the enactment of an income-tax 
statute whose primary object was not to raise revenue for 
the support of the Government, but an unmistakably po- 
of the country, the annual number for the New England States 
being more than sixteen times greater than their population. The 
widening of the sphere of one's surroundings, and a larger ac- 
quaintance with other men and pursuits, have long been recog- 
nised as not productive of content. Writing to his nephew more 
than one hundred years ago, Thomas Jefferson thus concisely ex- 
pressed the results of his own observation: "Travelling," he says, 
" makes men wiser, but less happy. When men of sober age travel 
they gather knowledge, but they are, after all, subject to recol- 
lections mixed with regret; their affections are weakened by being 
extended over more objects, and they learn new habits which can 
not be gratified when they return home." 

* " The great, the unanswerable argument in favour of uni- 
versal suffrage is, not that it insures a better or purer govern- 
ment, but that all must be contented with a government in which 
all have an equal voice. If it be deficient in this particular, if it 
fail to protect the poor against the oppression of the rich, or the 
rich against a destruction of their property by the poor, it is pro 
tanto a failure, and another method of representation should be 
adopted." — Address of Justice Broun, United States Supreme 
Court, before the Law Department of Yale University, July, 1S95. 



4 THE THEORY AND PRACTICE OP TAXATION. 

litical and socialistic measure, which threatened to annul 
the most important and exceptional feature of the Federal 
Constitution. 

That the diminishing rate of returns, in way of interest 
or profits, by the force of laws which no combination of 
capital can resist, is seriously impairing the relative value 
of wealth, and may eventually reach a minimum which 
will greatly diminish the inducement to individuals to 
economize or save it, although not generally recognised 
or appreciated, can not be denied.* And neither is it rec- 
ognised that the current rate of taxation on capital in 
all civilized countries even now approximates, and to an 
extent actually exceeds, the current rates of interest or 
profit on its use. Thus, for example, the rate of discount 
at the Bank of England during the greater portion of the 
years 1894 and 1895 has not been in excess of two per cent, 
and the discount (borrowing) rate for three months dur- 
ing this period was not infrequently less than a rate of 
three quarters per cent per annum. If taxes, according 
to popular theory, do not diffuse themselves, but remain 
a burden on the person, business, and property subject to 
their first incidence, there is a problem likely to come at 
no distant day before tax legislators, which up to the pres- 
ent time they have hardly thought of, and which is certain 
under a free government to be solved by human nature 
rather than by statute, f 

* The French economist, Paul Leroy-Beaulieu, treats fully of 
this subject in his Essai sur la Repartition des Richesses. 

f M. Leon Say, the distinguished French economist, in a recent 
discussion of the income tax, asserts that the public and private 
financial history of France has been one of incessant abolition 
of private and state debts, and in substantiation of such a con- 
clusion he shows that if a capital of 8,330 francs had been in- 
vested in national debt obligations of France in 1522 and allowed 
to remain subject to the various changes in respect to capital and 
interest which the financial policy of the state has necessitated 
and required under its successive governments, the present value 
of the investment to the legitimate heirs of the first investor would 
be but 83 francs. 

The reduction of annual income to the holders of the national 
debts of Europe, contingent on the refunding of the same during 
the year 1894, is estimated at $24,000,000, requiring an addition 
of $960,000,000, with an earning capacity of two and a half per 
cent per annum, to the total of what is called capital, to make 
up for the subtraction of income from the individual holders of 



TAXATION AND MORALITY. 5 

The scope and methods of raising revenue for the sup- 
port of a State are also some of the greatest, if not the very 
greatest, determining factors of the morality of a people. 
" I insist," said an eminent lawyer and member of the 
Constitutional Convention of the State of New York in 
1868, "that a people can not prosper whose officers work 
and tell lies. There is not an assessment roll now made 
out in this State that does not both tell and work lies." 
And no member of the convention, or any representative 
of the press, either then or subsequently, has challenged 
the assertion. The extent also to which the existing sys- 
tem of taxation in the United States has obliterated the 
sense of honesty in its people in their individual dealings 
with the Government, removed all repugnance to the act 
of perjury, and caused each one to justify himself to his 
conscience for making a false return in the matter of taxes, 
by the supposition that every one is doing the same, is also 
strikingly illustrated by the circumstance, that a high 
court in one of the States of the Federal Union has re- 
cently decided that " perjury in connection with a man's 
tax lists does not affect his general credibility under oath." 

The idea that the proper relation of a State to its 
people is essentially of a paternal nature finds much of 
popular approval, and is without doubt popularly desired. 
Accepting this idea as correct, let us exemplify it in its 
application to the State. Suppose a father in dealing 
with his family, placed, so far as his children are con- 
cerned, a premium on lying and concealment, and vested 
with a heavy penalty all truthfulness and straightforward 
dealing, he would be regarded as a worthy inmate for the 
States prison. But this is exactly what the Government 
of the United States does, or proposed to do, in the case 
of many of its so-called tax statutes. Thus in the recent 
income-tax statute it offered to its citizens considerations 
in money if they would forswear themselves, or practise 

such securities in the previous year. In the United States the 
shrinkage in the amount of annual dividends paid on the capital 
stock of its railroads between the years 1892 and 1894 is reported 
as in excess of $14,000,000, and in the annual interest on bonds 
during the same period at $13,000,000, or a total greater than the 
losses contingent on the whole refunding operations of the states 
of Europe during 1894. 



6 THE THEORY AND PRACTICE OF TAXATION. 

deception ; and it imposed a direct and heavy fine on those 
who were conscientious and truthful.* Again, when the 
Government imposes a tax of more than a thousand per 
cent in excess of the prime cost of the article taxed, as it 
did in 1864 in the case of distilled spirits (whisky), it 
offered a premium for the perpetration of fraud that 
human nature as ordinarily constituted could not resist. 
Could any course of action, if deliberately intended, be 
more demoralizing to a people ? Do not these experiences 
go far in support of the theory that if a people desire to 
have a paternal government it would be wise to choose 
a despotic form, inasmuch as all experience has shown 
that a republican or popular form of government is least 
fitted for such work? Give democracy a firm hold of the 
reins of government, and it is no easy matter, as the 
French Eevolution of 1789 and the present fiscal condition 
of France exemplify, to restrain its excesses. 

It should not furthermore be overlooked that that class 
of the community to whom the questions of morality and 
religion are especially intrusted, rarely, if ever, give this 
subject of taxation any attention. If any sermon has ever 
been preached in this country by any clergyman of any 
denomination on the moral and religious results of a de- 
fective system of taxation, the writer has never heard of 
it. One reason and apology for such conduct may be found 
in the circumstance that intelligent and reliable exposi- 
tions of this subject are not readily accessible. Indiffer- 
ence or antagonism to the study of taxation is not, how- 
ever, confined to the clergy i Minds trained in the law are 
not necessarily, and indeed rarely, trained thereby to 



* " The obvious method of requiring an oath as to the accuracy 
of the return, coupled with the severe penalties attached to all 
perjury, have been found by experience to be of very doubtful 
expediency. The history of taxation in the United States has long 
since established the fact, on documentary evidence, that in that 
country this requirement has made perjury habitual in tax assess- 
ments. . . . The danger of using the oath in connection with self- 
assessment of taxes lies in this fact, that, besides its evil effects 
on morals, it still further increases the inequality of assessments; 
one part of the taxpayers will have their conscience aroused by 
the oath, while others do not, so that the inequality to be ex- 
pected under any system of self-assessment will simply be aug- 
mented." — Colin, Science of Finance, p. 618. 



STAKE DECISIS. 7 

esteem or intelligently discuss economic subjects. One 
of the most eminent members of the American bar recently 
remarked to the writer that, grant whatever measures of 
importance we may to economic principles and interests, 
they have no place in the legal profession, the business of 
which was, not to make or amend laws as expressed in 
enactments, but to interpret and determine their applica- 
tion. Hence the popularity at the American bar of the 
legal maxim stare decisis, which may be interpreted to 
mean, follow precedents, and do not attempt to invalidate 
the reasons and conclusions of the lawmakers. Such a 
theory and rule of practice would, however, close the door 
on reason and truth, and constitute an almost insuperable 
barrier to all social progress. If Lord Mansfield, when the 
negro slave Somerset came before him with a demand that 
he be given his freedom, had followed precedents, he would 
have denied the application, for such precedents were op- 
posed to it. But recognising the change which an ad- 
vanced civilization had effected in the government of the 
English people, and that the slave was held, to quote his 
language, " in virtue of positive law " (precedent), "which 
preserves its force long after the reasons and occasions 
from whence it was created are erased from memory/' 
he granted the application; and incorporated into the 
policy of the English Government the principle of which 
the British people have ever since been proud — that no 
person can continue to be a slave after he has planted his 
foot on English soil. 

Other obstacles, at present almost insuperable, in the 
way of establishing a correct system of taxation, are that 
the subject has not been until recently properly taught, 
if taught at all, in the higher institutions of learning of 
the United States and Great Britain; that up to the pres- 
ent time there is rarely if ever given a correct and scientific 
definition of the terms " tax " and " taxation," which 
makes it somewhat doubtful if those who talk about their 
meaning and incidents know what they are talking about ; 
that there are no text-books on the subject generally ac- 
cepted as authoritative; that there is no clear and settled 
understanding even as to what constitutes the main sub- 
ject of taxation — namely, property; that the meaning of 
terms which have formed the basis of statutes and legal 



8 THE THEORY AND PRACTICE OP TAXATION. 

practice is entirely different in the United States and other 
leading civilized nations; and that, as a rule, professors 
of economic science in the United States have failed to 
recognise in their reasoning and teachings of this whole 
subject, that the Government of the United States, both 
Federal and State, differs in many respects, both in theory 
and practice, from any other government that has hereto- 
fore existed; and that therefore ideas and experiences 
which are regarded as the basis of sound policy in respect 
to taxation in the former are not accepted as such in the 
latter. Thus the United States, alone of the great nations 
of the world, regards debts and credits as property right- 
fully subject to taxation. The United States is also the 
only nation in which the taxation of exports is forbidden 
both to Federal and State governments under any circum- 
stances. To no other government, furthermore, than that 
of the United States is applicable the following principle 
enunciated by the United States Supreme Court (116 
United States Reports, p. 631) respecting the assessment 
and collection of taxes: "Any compulsory discovery, by 
extorting the party's oath, or compelling the production 
of his private books and papers to convict him of a crime 
or to forfeit his property, is contrary to the principles of 
a free government. It is abhorrent to the instincts of an 
American. It may suit the purposes of despotic power, 
but it can not abide the pure atmosphere of political liberty 
and personal freedom." If this principle was recognised 
as the higher law in European states, it would be safe to 
say that the revenue collected from their income taxes 
would be exceedingly small. 

It is also a very curious circumstance that an exist- 
ing system of municipal or local taxation, which has 
proved itself to be most intelligent, satisfactory, and effi- 
cient for revenue, and most worthy of being studied as a 
model for adoption, has as yet almost entirely failed of 
recognition or consideration by any of the recent writers 
on taxation or authorities on general economic subjects 
on either side of the Atlantic. 

Again, ignorance or wilful disregard of the true prin- 
ciples of taxation in the United States has powerfully con- 
tributed to foster the idea among its people that they 
should look to Government for their support, rather than 



BENEFITS OP TAXATION. 9 

that the people should support the Government. The 
practical incorporation of this idea into the fiscal policy 
of the Government has enabled a comparatively few per- 
sons to accumulate vast fortunes, has built up class dis- 
tinctions, promoted popular discontent, and established a 
precedent for state socialism. Figs, however, can no more 
be gathered from thistles than class legislation, whether 
it be the rich against the poor or the poor against the rich, 
can be looked to for the perpetuation of popular govern- 
ment or the spread of democratic virtues. The evil of 
bad taxation is not merely economic, it is moral, and no 
argument can change its character. 

To defective elementary education, in respect to the 
principles of taxation, may also be attributed the almost 
universal disassociation in the minds of the masses be- 
tween the payment of taxes and the benefit, or profitable 
return consequent upon such payment. The youth of the 
United States, and doubtless of all other countries, as he 
grows up, finds roads and bridges, schools, courts and 
churches, commercial regulation and police — in short, all 
national, State, or municipal machinery — provided for him 
almost as freely as air, sunshine, or water. He has but to 
live to experience their benefits or discomforts. At home 
these subjects, regarded as dry and abstruse, are rarely 
if ever selected as topics for social conversation, and, if 
casually brought up, are discussed merely in reference to 
their bearing upon the interests of this or that political 
party. The sons, therefore, of even refined and intelli- 
gent American families, so far as home education and 
influences are concerned, enter upon their duties as citi- 
zens, with votes and voices for determining the policy of 
their government, with not merely an entire ignorance 
of the principles or methods by which the cost of the bene- 
fits accruing from such policy are defrayed, but with a 
disinclination to receive instruction on the subject. Each 
one, indeed, seems to argue to himself that " as govern- 
ment and society went on very well without thought or 
care of mine during the first twenty years of my life, they 
will undoubtedly so continue during my manhood." And 
if they eventually become public functionaries, their tend- 
encies, conjoined with not having inherited or acquired 
the value-perceiving faculty, are toward extravagance and 
2 



10 THE THEORY AND PRACTICE OF TAXATION. 

waste in governmental matters. What would have been 
saved to the people of the United States since the begin- 
ning of the civil war through wise methods of taxation is 
almost beyond conception. The loss to the Federal Gov- 
ernment during the single year 1864, when revenue was 
most needed on account of the war, through a needless im- 
perfection of the law imposing taxes on the single item of 
distilled spirits, was proved to have been in excess of 
fifty million dollars. 

In short, it is a most singular idiosyncrasy of the 
American people, and perhaps the people of all other coun- 
tries, that they will defer or neglect the study of the most 
vital question which can concern a citizen. Probably not 
more than one citizen out of a hundred, even among those 
who pay taxes, can be induced, as a rule, either to talk 
about, think about, or study how much national Govern- 
ment costs him per annum, or how much his State or local 
government costs. And as long as this is the situation, 
and until the American citizen does become a student of 
taxation, it is difficult to see how the national and State 
governments can be wisely and justly managed. 

Of the utter lack of comprehension of the results of 
what may be termed everyday experiences of taxation, 
coupled with a general indifference to the subject, which 
often characterizes American legislators, even such as are 
popularly regarded and spoken of as statesmen, the follow- 
ing incidents will abundantly illustrate : Pending a recent 
presidential election, a distinguished member of the Sen- 
ate of the United States, and also of the American bar, 
assured a popular audience that the people of the single 
State of Illinois paid a larger amount in taxes to the 
Federal Government than were paid by all the people of 
the former Confederate States. Such a statement was ob- 
viously made on the assumption that because the State 
of Illinois annually manufactured a very large amount 
of distilled spirits, the burden of a very heavy tax on the 
same rested upon its people; when a very little thought 
would have shown that the manufacturers of the spirits 
incorporated the tax in the market price of their product, 
and that the payment of the same fell entirely upon the 
people who consumed them, who were not in the main the 
people of Illinois. If this was not the case, the manu- 



FALSE IDEA ON A TAX. 11 

facturers of Illinois paid and assumed a tax obligation of 
ninety cents a gallon for the privilege of making whisky 
costing and worth an average of but thirteen cents per 
gallon. The average annual consumption by the people 
of Illinois at the time, supposing that they actually paid 
the tax on their product of whisky, must have also been 
at the rate of over six gallons per head for every man, 
woman, and child of its population. 

When " an act to reduce taxation to provide revenue 
for the Government and for other purposes " — passed Au- 
gust 28, 1894 — was under consideration by the Senate of 
the United States; and pending a proposition to increase 
the revenue by increasing an existing tax of about seven 
hundred per cent on the average prime cost of distilled 
spirits to a rate of nearly nine hundred per cent, a Senator 
of long experience, apparently utterly oblivious that the 
subject involved had years before been thoroughly con- 
sidered by the United States Treasury Department and 
declared to be impracticable, submitted a motion, permit- 
ting the use of alcohol in the arts, or in any medicinal or 
other like compound, without the payment of any internal 
revenue tax. The motion in question, after very brief 
consideration, was accepted and incorporated in the statute 
and now forms a part of the fiscal obligations and laws 
of the United States. The result was that the Secretary 
of the Treasury reported, that in default of any appro- 
priation to defray the expenses of the administration of 
the act and the repayment of taxes, and " after full con- 
sideration of the subject, and an unsuccessful attempt to 
frame regulations which would protect the Government 
and the manufacturers, the department was constrained 
to abandon the effort." It was also estimated that the 
expense to the Government of attempting to administer 
the act would probably be not less than one million dollars 
per annum; that the legitimate loss of revenue contingent 
on its enforcement would be about ten million dollars 
yearly, or " more than one half of the estimated increase 
of revenue " that was expected to accrue from the increase 
of the tax, and that the loss of revenue from the oppor- 
tunity for illicit and fraudulent practice, which the act 
would facilitate, would be unquestionably very considerable 
— probably an equal amount. The inference from all of 



12 THE THEORY AND PRACTICE OF TAXATION. 

which is, that when a State sends a representative to the 
United States Senate who, through indifference or gross 
ignorance of the most common principles and domestic 
experiences of taxation prospectively, entails a loss to the 
Government of some twenty million dollars per annum, it 
pays a very great price for such a privilege. 

During another comparatively recent fiscal debate in 
the United States Senate, a Senator, who is popularly and 
justly accredited with statesmanship, advocated certain 
proposed appropriations of the public money, which were 
opposed on the ground that they were in the nature of ex- 
travagances, by saying that they could not be grievous to 
the people " since they would not amount to more than 
three cents per day per capita." But three cents per day 
assessed on sixty-five millions of people would amount to 
nearly eleven dollars per head per annum, or over seven 
hundred million dollars for the entire country. 

Finally, there has been one most serious and unfor- 
tunate mistake, which nearly all who have undertaken to 
discuss the principles and practice of taxation have been 
prone to make — a mistake, moreover, which more than 
all else is responsible for the opinion which has come so 
generally to prevail, that the subject of taxation, through 
lack of any fixed principles or axioms, does not as yet rise 
to the dignity of a science ; and that its practice at the best 
can be but a sort of empiricism, to be varied in proportion 
to the strength which a government possesses to enforce 
its enactments, or in proportion to the prejudices of the 
people who are to be called on for a contribution. The 
mistake consists in taking up the subject for investigation 
and discussion, if we may so express it, wrong end fore- 
most; or in devoting time and effort to warring against 
abuses; or in attempting to show how certain forms of 
taxation commend themselves in respect to productiveness, 
freedom from personal inquisition, and economy in col- 
lection, and how others are to be avoided for contrary 
reasons; and in not attempting to inquire whether the 
whole subject was underlaid, by any general laws in ac- 
cordance with which the contributions which the State 
is compelled as a condition of its existence to exact of its 
citizens diffuse themselves; and which laws, being once 
determined, will constitute a certain and sure founda- 



TAXATION AND WEALTH. 13 

tion on which practical administration can be based and 
conducted. 

The fact that snch laws exist and only await discovery 
may be predicated, as it were, from surface indications, 
in the form of a great variety of disconnected economic 
facts, with just as much of certainty as the miner who, 
picking up here and there in the beds of streams frag- 
ments of coal or ore which the elements have scattered, 
predicates that somewhere there must be a larger vein 
or deposit from which the fragments have been derived. 

The aggregates of the sums required by the governments 
of the world for their support are annually increasing, but 
probably in no greater ratio than the increase in their 
wealth, or property rightfully subject to taxation; and in 
those states in which there is a marked and continued 
increase in the control of the forces of Nature for produc- 
tion, the ratio of taxation to aggregate wealth undoubtedly 
tends to diminish. 

That there are, however, some striking illustrations 
that seem to prove to the contrary, is not to be denied. 
Thus, we have a recent statement that the expenses of the 
city of Philadelphia in eight years have increased two 
hundred and thirty per cent, while the taxable valuation 
of property in the same time has increased only twenty- 
five per cent. In 1862 the aggregate taxation of the 
city of Providence, E. I., was $379,000. In 1892 it was 
$2,333,000. In the former year the taxable real and per- 
sonal estate was valued at $61,000,000, while for the year 
1892 the valuation was $155,000,000. Thus the increase 
in the amount of taxes collected within the thirty years 
was five hundred and fifteen per cent, while in the amount 
of assessable property the gain was only one hundred and 
fifty-four per cent. The rate of tax increased during the 
same period from $6.50 to $15 per $1,000. 

Among the leading nations of the world the compara- 
tive burden of exactions by Government is heaviest in Eus- 
sia, Italy, and France. In Eussia the present govern- 
mental exactions — under the name of taxes — from the 
agricultural peasant are reported to be about forty-five 
per cent of the value of his annual product or earnings. 
In Italy the state exaction is believed to absorb from one 
third to one half of the value of its agricultural product. 



14 THE THEORY AND PRACTICE OF TAXATION. 

The present aggregate of annual taxation in France is un- 
doubtedly the greatest to which any country in modern 
times has been subjected > and including all taxes — na- 
tional and local — is estimated as in excess of $1,400,000,- 
000, or about one fourth of the annual income of its 
people. And yet it is claimed that the prosperity of the 
nation is increasing. There can, however, be no doubt 
that the financial strain caused by such great and continu- 
ous demands on the income of the French people is begin- 
ning to be severely felt ; and in a recent budget discussion 
in the Senate of the republic, M. Loubet, chairman of its 
financial committee, insisted that taxation had reached 
its utmost endurable limit.* 

As far back as 1879 the taxation imposed by Spain on 
her island of Cuba was reported to have made the latter the 
most heavily taxed country in the world; the rate on its 
free population being then estimated as equal to $34.50 
per capita. 

The cost of the Government of Great Britain for 
1893- 7 94 defrayed by what are termed imperial taxes — 
mainly customs and inland revenue, and deducting all 
items of compensating revenue, as receipts from crown 
lands, etc. — was £75,427,000. The total expenditures of 
the local authorities of the kingdom for 1893, defrayed 
from rates on the annual value of houses, or lands occu- 
pied, from gas and water rents, tolls, dues, loans, etc., and 
less the grant of subsidies from the Imperial Government, 

* In a recent article in the Economiste Frangais, M. Leroy- 
Beaulieu presents some facts which enable foreigners to form an 
opinion of the financial management of France under its present 
democratic form of government. There is at present, according to 
this well-recognised authority, an actual annual deficit of between 
three and four hundred million francs. The floating debt, " of- 
ficial or concealed," has taken enormous proportions, and is met 
by a variety of expedients, and mostly by secret loans (which are 
always costly), because the Government does not dare contract a 
large public loan, the only regular and least expensive means of 
extrication from financial embarrassments. Expenses are piling 
up and nobody takes any thought of repressing them. In short, 
according to M. Leroy-Beaulieu, there is under the present Gov- 
ernment, notwithstanding " constant and vain buzzing on the sub- 
ject of democratic reforms, the adhesion of a mollusc to the wretch- 
edest routine and a downright hatred of every kind of improve- 
ment." 



TAXATION FROM EXPEDIENCY. 15 

was about £56,000,000, making an aggregate of £131,400,- 
000— or $657,000,000. 

For the year 1890 the aggregate receipts of the Federal 
and State governments of the United States, mainly from 
taxes, as reported by the census for that year, were $1,040,- 
473,013, apportioned as follows: Federal taxation, $461,- 
154,000 ; State or local taxation, $578,328,000. Deducting 
the cost of postal service repaid by postal charges, and the 
receipts from the sale of public lands, the aggregate ex- 
penditures of the Federal Government would have been 
about $390,000,000. 

Of these large sums it is safe to say, more especially 
of the latter national summary, that a very small propor- 
tion, not even as much as a single dollar, has been raised 
under a statute framed and enacted solely from recog- 
nition of and conformity with any correct economic prin- 
ciples; and that in most, if not all, tax legislation, ideas 
not warranted by thought and experience, and based on 
expediency or political considerations, have always pre- 
dominated. Illustrations of the truth of this assertion 
are abundant, but for the present one most pertinent, 
drawn from recent experience, must suffice. In August, 
1891, the Farmers' Alliance of the State of Maryland held 
a convention in Baltimore for the purpose of advocating 
a complete revision of the tax laws of their State, the im- 
perfection, injustice, and practical futility of which were 
not questioned; and after general debate the following 
resolutions were unanimously adopted, not one of which 
is economically true; not one of which in the light of ex- 
perience can be successfully enforced by other than a 
despotic government ; and every one of which, if enforced, 
would prove prejudicial to the interests of the community 
which sanctions and enacts them : 

" Resolved, that the burden of all taxation ought to be 
imposed equally and impartially on all property, of what- 
soever kind, both personal and real, without distinction 
and discrimination; that every exemption from taxation 
is equivalent to direct appropriation for the benefit of the 
owner of exempt property, and an increased levy on the 
property of those who pay taxes; that no tax law which 
provides for the exemption of any property of any kind 
can be either expedient or just; that no law, no contract, 



16 THE THEORY AND PRACTICE OP TAXATION. 

no device which by any means directly or indirectly im- 
poses the payment of any part of any tax upon any man 
not the bona fide owner of that property ought to be toler- 
ated; that debts secured by mortgages at legal interest are 
among the best and most productive forms of property, and 
should be taxed where the mortgages are recorded." * 

A recent English writer has claimed that the experi- 
ence in reference to taxation of the forty-five anomalous 
sovereignties which now make up the United States (none 
subordinate to a national Government except to a limited 
extent and in respect to particular questions), has thrown 
a great light upon the temper of democracies. " Half a 
century ago every thinker predicted that the one grand 
evil of democracy would be meanness; that it would dis- 
play an ' ignorant impatience of taxation/ and that it 
would refuse supplies necessary to the dignity, or at least 
to the visible greatness, of the state." That prediction 
has, however, proved itself, not only by the experience of 
the United States, but also of the leading countries in 
Europe, to be the exact contrary of the facts. " The lower 
the suffrage, the higher the budget mounts. Democracy 
loves spending, is devoted to dignity, and, provided they 
are indirect, or fall heaviest on the rich, will pay any 
amount of taxes. The English democracy with household 
suffrage, though it has reduced its debt, has increased its 
budget, increased rates all over the country, and would 
not be frightened to-morrow if a great socialistic experi- 
ment were to cost it a hundred millions. It hardly shud- 
ders when it is asked to support in comfort, at a cost of 
about £17,000,000 ($85,000,000), its whole aged poor. 
The French democracy has nearly doubled its taxation 
and raised its debt more than a third, apart from the 
tribute paid to Germany. The German democracy, with 
enlarged suffrage, a poor soil, and nearly universal poverty, 
is always granting new demands, whether for soldiers, 
ships, colonies, or centralized officials." 

But it is in the United States, with universal suffrage 
and the richest of estates, that the extravagance of govern- 
ment expenditures, sustained by taxation, rises to a point 

* In the following chapters the absurdity of the above resolu- 
tions will be specifically demonstrated. 



DEMOCRACY AND TAXATION. 1? 

which fiscal experts, like Alexander Hamilton, Kobert J. 
Walker, and Albert Gallatin in the United States, and 
William Pitt, Sir Eobert Peel or Ricardo in England, 
could not have been persuaded to believe possible. Either 
of them would have declared an America-n pension list 
arising out of war only and not covering any allowances 
to civil servants, amounting to $155,000,000 (£31,000,- 
000) a year, too absurd for credence, and would have criti- 
cised the prophet who made the prediction for his poverty 
of invention. 

That the interests benefited by national extravagance 
will, under free suffrage, always constitute a formidable 
obstacle to judicious tax reform, especially if such reform 
contemplates national economizing, can not well be 
doubted; and also that this opposition will be re-enforced 
to some extent by a popular feeling that something of 
colour and dignity will go out of national life by any 
marked curtailment of the expenditures of the State. On 
the other hand, the political supremacy of the United 
States confessedly yet resides in its agricultural classes, 
who more than any other are characterized by a spirit of 
thrift and a desire for equitable and low taxes. 

Such, then, is the situation which confronts any one 
who proposes to discuss broadly the great subject of taxa- 
tion with a view of effecting reforms in the existing sys- 
tem. It exacts, on the part of him that is to attempt it 
with any prospect of success, a familiarity with theory, 
not merely gained from the study of books, but theory 
based on extensive practical administration. It requires, 
on the part of both the teacher and the taught, what Her- 
bert Spencer has declared to be the conditions of success 
in all departments of scientific research, namely, " an 
honest receptivity and willingness to abandon all precon- 
ceived notions, however cherished, if they be found to con- 
tradict the truth/' 



CHAPTER I. 

RECENT TAX EXPERIENCES OF THE FEDERAL GOVERNMENT 
OF THE UNITED STATES. 

Before passing to the detailed consideration under 
proper and consecutive subdivisions of the subject of taxa- 
tion, the writer thinks it expedient to outline briefly the 
exceptional circumstances under which his studies and 
investigations have been prosecuted; inasmuch as, apart 
from any expectation of consequent intelligent criticism 
on his conclusions, a somewhat personal narration may 
help to a better popular understanding of a great chapter 
in the nation's fiscal experience, which, although without 
a parallel in all history, has thus far received scant notice 
and little appreciation on the part of economic writers and 
historians. 

His first connection with economic and fiscal questions 
of public import was through the publication, at the dark- 
est financial period of the war — 1864 — of the results of an 
inquiry into the resources and prospective debt-paying 
ability of the United States, and bearing the title of Our 
Burden and Our Strength. This essay, although first 
printed privately, was reprinted and circulated by the 
Loyal Publication Society of New York, and, receiving 
the approbation of the Government, became one of the 
current publications of the war period. Reprinted in 
different sections of the country by loyal citizens, and also 
in repeated instances in England, translated into French 
and German, it attained a very large circulation ; in excess 
of two hundred thousand copies. Coming at a period 
when the nation was beginning to be alarmed at the mag- 
nitude and prospective increase of its public debt, and 
apprehensive of an impending crushing burden of taxa- 
tion, its publication and circulation were instrumental in 
18 



COMMISSION ON THE REVENUE. 19 

restoring public confidence and maintaining the credit of 
the Government. 

The attention of President Lincoln having been at- 
tracted to this publication, he invited the author in early 
February, 1865, to come to Washington and confer with 
him and Mr. Fessenden, then Secretary of the Treasury, 
on the best methods of dealing, after the termination of 
the war (then evidently near at hand), with the enormous 
debt and burden of taxation that the war had entailed 
upon the nation.* The result of this conference was, that 
an amendment was added, at the last hours of the Thirty- 
eighth Congress, to a bill " To provide Internal Kevenue," 
and passed March 3, 1865, authorizing the Secretary of 
the Treasury " to appoint a commission of three persons 
to inquire and report at the earliest practical moment on 
the subject of raising by taxation such revenue as may be 
necessary to supply the wants of the Government, having 
regard to and including the sources from which such reve- 
nue should be drawn, and the best and most effectual mode 
of raising the same/' The commission was further em- 
powered " to inquire into the present and best methods of 
collecting the revenue," and to take testimony. Of this 
commission the writer was, unexpectedly to himself, ap- 
pointed chairman by the then Secretary of the Treasury — 
Hon. Hugh McCulloch — after the assassination of the 
President, but in accordance with his previously indicated 
wishes, f It was also deemed expedient that, of the other 

* Mr. Lincoln opened the conference by remarking that, al- 
though the war was evidently drawing to a close, he feared that 
great difficulties were yet to be encountered through the possible 
unwillingness or inability of the nation to pay the war debt, or 
the great increase in taxation which the war had made necessary; 
and followed this remark by asking if the writer had anything to 
suggest on the subject. The offhand answer returned was, that the 
best thing to be done was to have an examination made by competent 
persons of the resources of the country and the best methods of 
making them available for meeting the expenses of the Govern- 
ment through taxation. Turning to the Secretary of the Treasury, 
Mr. Lincoln remarked : " That's a pretty good idea, Fessenden, 
isn't it? We'll think about it"; and as the hour (evening) was 
becoming late, the conference substantially soon ended. 

t The appointment was unsolicited and unexpected, and Mr. 
Fessenden some years afterward stated that when the composition 
of the commission was under consideration Mr. Lincoln remarked 



20 THE THEORY AND PRACTICE OF TAXATION. 

members, one should be a representative of the agricul- 
tural interests of the West, and a third a citizen of Penn- 
sylvania, the chairman being at the time a citizen of New 
York; and in accordance with this view Mr. Samuel S. 
Hayes, who had distinguished himself as Comptroller of 
Chicago, and Mr. Stephen Colwell, of Philadelphia, a 
gentleman of advanced age, and a successful manufactur- 
er of iron, who had written some years before the war an 
able book entitled Ways and Means of Payment, a Full 
Analysis of the Credit System, were selected. A word 
of retrospection is here essential to an understanding of 
the situation. 

If it be an axiom in political and social as well as 
physical and natural science, that the first requisite for 
progress consists in the correct observation and recording 
of phenomena, whereby old laws or principles may be veri- 
fied or extended and new ones discovered, it would be 
difficult to imagine a field more fruitful for investigation 
and more promising of reward than the financial and in- 
dustrial experiences of the United States immediately 
anterior and subsequent to the outbreak of the civil war — 
experiences which had truly the character of vast social 
and political experiments, made on a scale of magnitude 
rarely if ever before equalled; for the most part emphat- 
ically tentative in character, and affecting in their results 
not only the growth, the income, and the industrial pur- 
suits of the nation directly and immediately concerned, 
but also in a greater or less degree the trade and com- 
merce of the whole world. 

At the breaking out of the civil war in 1861, the United 
States was in the anomalous position of a great nation 
practically unencumbered with a national or public debt. 
Excise, stamp, income, license, and direct or general prop- 
erty taxes under the Federal Government were absolutely 
unknown; the expenses of a simple and economical ad- 
ministration being defrayed almost entirely by indirect 
taxes, levied in the form of a tariff on the importation 
of foreign products or merchandise. In fact, the only 
other noticeable source of national revenue was from the 



that " he thought we had better let the young man who had sug- 
gested the idea of it be at the head of it." 



EARLY REQUIREMENTS OF THE GOVERNMENT. 21 

sale of public lands, which, at a maximum price fixed by 
law of one dollar and a quarter per acre, returned to the 
Treasury an average income of from one to three million 
dollars per annum; rising in a few instances, during 
periods of wild speculation, to six, fourteen, and in one 
exceptional year (1836) to even twenty-four million 
dollars. 

The average rate of duties imposed on the aggregate 
value of foreign importations during the thirty years im- 
mediately preceding 1860 was about twenty per cent; but 
for a portion of the time the annual rate was much less, 
and for a number of years— 1834 to 1843 and 1858 to 1861 
inclusive — it was not in excess of fifteen per cent. An 
occasional need of money by the Government was met by 
loans on Treasury notes or short-term bonds. 

But notwithstanding these limitations on the sources 
and amount of income, the requirements of the national 
Government for all purposes were so moderate that the 
receipts of its Treasury continually tended to exceed its 
disbursements; and the difficulty which most frequently 
presented itself to its financial administrators was not 
the customary one in all other countries, of how to avoid 
an annual deficit, but rather how to manage to escape an 
inconvenient but inevitable surplus. And it is a curious 
fact, and one perhaps altogether unprecedented and almost 
unrecognised in history, that from the years 1837 to 1857 
there was rarely a single fiscal year, in which the unex- 
pended balance in the national Treasury — derived from a 
few sources — at the end of the year, was not in excess of 
one half of the total expenditure of the preceding year.* 

To provide for the use, or rather to get rid of a con- 
tinual surplus, various plans were from time to time sug- 
gested. In one instance the House of Eepresentatives, 

* During the decade from 1821 to 1831 the average ordinary 
annual expenditures of the United States were $12,390,000, or at 
the rate of $1.07 per capita of its whole population. 

From 1831 to 1841, $24,740,000, or $1.61 per capita. 

From 1841 to 1851, $33,760,000, or $1.63 per capita. 

From 1851 to 1861, $57,870,000, or $2.06 per capita. 

For the year 1894 the total expenditures of the Federal Gov- 
ernment, as officially reported, were $442,605,758, or $6.08 per capita 
of the entire population of the country; or $4.50 less expenditure 
for pensions. 



22 THE THEORY AND PRACTICE OF TAXATION. 

on motion of Henry Clay (the leading statesman of his 
day), seriously considered the question of the expedien- 
cy of the national Government becoming by purchase 
and investment a partner in various stock corporations 
or enterprises; and pending any conclusion the surplus 
funds were deposited in the local or small State banks, 
with reiterated injunctions " to loan liberally to mer- 
chants." 

In 1836, the unexpended cash balance in the Treasury 
of the United States reported as available for public pur- 
poses being $65,723,959— $46,001,467 of which was on 
deposit in ninety-one different State banks — Congress (by 
act of June 23d of that year) appropriated the sum of 
$37,468,859 for distribution among the States; of which 
$27,063,430 was officially certified in September, 1837, as 
having been actually paid. Most of the States applied the 
amount apportioned to them for educational purposes. 
Others used it differently and less wisely: Massachusetts, 
for example, dividing her share proportionally among her 
towns and cities, where it was expended at the discretion 
of the local authorities ; in one instance, in a small fishing 
town, for the construction of walks on the sands for the 
benefit of pedestrians; and in others for the purchase of 
houses and lands for the use and settlement of the town's 
poor.* 

As might have been expected under such circumstances, 
fiscal and economic subjects were, during the period under 
consideration, those that least of all attracted the atten- 
tion of the American people. Few books or essays on such 
topics were either written or read, while the continually 
increasing agitation and interest respecting the existence 
or extension of negro slavery furnished the never-ending 
and predominant theme for discussion alike to the press, 
the politicians, the pulpit, Congress, and the local Legis- 
latures. There had been, indeed, fierce discussions and 
political divisions in 1836-'38 respecting the organization 
and management of banks, and the establishment of a 
national bank; and in 1840-41 and 1846, respecting the 



* See Bourne, The History of the Surplus Revenue in 1837; 
being an Account of the Origin, its Distribution among the States, 
and the Uses to which it was applied. New York, 1885. 



CONDITIONS BEFORE THE CIVIL WAR. 23 

construction and adjustment of the tariff, and the prin- 
ciples of free trade and protection. But during the decade 
from 1850 to 1860 all these questions were generally 
regarded as old-time issues, and by the generation that 
then had control of the business and government of the 
country were both substantially ignored and forgotten; 
and it was during the latter years of this period, or from 
1851 to 1860, that the comparative growth and progress 
attained by every department of American trade, com- 
merce, and industry were greater than for any correspond- 
ing period either before or since, in the history of the 
nation. During the same decade the increase in popula- 
tion of the country was returned at 35.59 per cent, its 
increase in wealth at 126.4 per cent, and the average of 
property to each individual at $510. In short, it would 
be difficult to find a more happy illustration of the influ- 
ence of the " non-interference " or " non-obstructive " 
policy of a government with the trade, commerce, and 
industry of a highly civilized and active people, than the 
condition of the United States at that time afforded. 

That the county, viewed from a politico-economic 
standpoint, was at this time in all respects what it should 
or might have been, is not, however, asserted. The insti- 
tution of slavery, denying to over four millions of human 
beings the freedom of the person, the right to real property, 
and the blessings of education, was tolerated and supported 
by law. The paper and ordinary currency of the country, 
neglected by the General Government, and issued by local 
banks under almost as many different systems as there 
were States in the Union, was as defective as could be well 
imagined, and often necessitated a rate of exchange be- 
tween the different sections of the country which was 
equal to or in excess of the current rates of interest at 
the principal commercial centres. 

But notwithstanding these drawbacks the people in 
general were highly prosperous. Pauperism, apart from 
the large cities, was almost unknown; wealth was very 
equitably distributed; while the opportunities for ele- 
mentary education were free, and in all the more densely 
populated portions of the country amply provided. In 
short, the prosperity of the people was so great, through 
the utilization of their natural resources, their activity, 



24 THE THEORY AND PRACTICE OF TAXATION. 

and the continued influx of the population and capital 
of other countries, that it constituted in itself an obstacle 
to reform; and the nation at large may be said to have 
actually preferred to endure the various economic and 
social evils incident to their situation rather than devote 
time to their consideration and meet the grave political 
issues consequent upon any change or reformation. What 
would have happened, what would have been the economic 
and social condition of the United States, had not the 
people of its southern section appealed to the arbitrament 
of the sword in the matter of slavery and consented to its 
peaceful abolition,* constitutes a most curious and inter- 
esting theme for speculation. Certainly it would have 
been something without precedent in the world's former 
experience. 

It was with such antecedents and under such condi- 
tions that the nation found itself in the early months of 
1861 suddenly and unexpectedly involved in a gigantic 
civil war, in which its very existence was threatened by 
the uprising of at least a third of its population against 
the legitimate and regularly constituted Government. 
The most urgent and important requirement of the Fed- 
eral Government at the outset was revenue. Men in excess 
of any immediate necessity volunteered for service in the 
army, but to equip and supply even such as were needed 
precipitated an avalanche of expenditure upon the Treas- 
ury. To meet these financial requirements there was on 
the part of the Government neither money, credit, nor 
any adequate system of raising revenue by taxation; the 
previous reliable supply of revenue from the customs hav- 
ing at the most critical period, through the diminution 
of imports consequent upon the political disturbances, 
become subject to a serious and ominous impairment; 
while the money returns from all sources, other than loans, 
for the year 1862 were only $2,867,057. For this latter 
year the total ordinary receipts of revenue of the Govern- 
ment were but $51,919,000, and its expenditures $456,- 
379,000. 



* Subsequent events have made it clear that with the continu- 
ance of slavery the development of the nation must have been 
greatly retarded. 



WAR REVENUE LEGISLATION. 25 

At the outset it was assumed that the war would be 
short, and that the expenditures of the Government could 
be met by the agency of loans and an issue of paper money, 
the detailed history of which, although not yet familiar 
to the American public, is not directly pertinent to the 
subject under consideration, and would require a separate 
essay for its presentation in any degree of fulness. All 
direct or internal taxation was accordingly for a time 
avoided; there having been apparently an apprehension on 
the part of Congress that inasmuch as the people had never 
been accustomed to it, and as all machinery for assessment 
and collection was wholly wanting, its adoption would 
create popular discontent, and thereby interfere with a 
vigorous prosecution of hostilities. Congress accordingly 
confined itself at first to the enactment of measures look- 
ing to an increase of revenue from the increase of indirect 
taxes upon imports, and it was not until four months after 
the actual outbreak of hostilities that a direct tax of 
twenty million dollars was apportioned among the States, 
and an income tax of three per cent on all incomes in 
excesss of eight hundred dollars was authorized, the first 
being made to take effect practically eight and the second 
ten months after date of enactment. Such laws, of course, 
became operative in the loyal States only, and produced 
but comparatively little revenue; and although the sphere 
of taxation was soon extended, the aggregate receipts from 
all sources by the Government for the third year of the 
war — from excise, income, stamps, and all other internal 
and direct taxes — was less than forty million dollars, and 
that, too, at a time when the expenditures were in excess 
of sixty million dollars per month, or at the rate of more 
than seven hundred million dollars per annum. And as 
showing how novel was this whole system of direct and in- 
ternal taxation to the people, and how completely the 
Government officials were lacking in all experience in re- 
spect to it, the following incident may be cited : The Secre- 
tary of the Treasury, Mr. Chase, in his report for 1863 
stated that with a view of determining his resources he 
had employed a very competent person, with the aid of 
practical men, to estimate the probable amount of revenue 
to be derived from each department of internal taxation 
for the current year. The estimate arrived at was $85,- 
3 



26 THE THEORY AND PRACTICE OF TAXATION. 

456,303, but the actual receipts were less than forty mil- 
lion— $37,640,788.* 

The people of the loyal States were, however, more de- 
termined and earnest in respect to this matter of taxation 
and revenue than were their rulers, and everywhere the 
one opinion expressed was, that taxation in all its forms 
should immediately, and to the largest extent, be made 
effective and imperative. And Congress, spurred up by 
and rightfully relying on public sentiment to sustain its 
action, at last resolutely took up the matter, and devised, 
or rather drifted into, a system of internal taxation which 
for its universality and peculiarities has no parallel in 
anything which had theretofore been recorded in civil his- 
tory, or is likely to be hereafter. 

The great necessity of the situation was revenue, and 
to obtain it speedily and in large amounts through taxa- 
tion was the only principle recognised (if it can.be called 
a principle), and was akin to that recommended to the 
traditionary Irishman on his first visit to Donnybrook 
Fair : " Wherever you see a head, hit it ! " Wherever you 
find an article, a product, a trade, a profession, a sale, or 
a source of income, tax it ! And so an edict went forth to 
this effect, and the people cheerfully submitted. Incomes 
under five thousand dollars were taxed five per cent, with 
an exemption of five hundred dollars and house rent 
actually paid. Incomes in excess of five thousand dollars 
and not in excess of ten thousand dollars were taxed two 
and a half per cent in addition, and incomes over ten thou- 
sand dollars, five per cent additional, without any allow- 
ance or exemptions whatever. Nearly every industrial 
product was taxed. Cotton was taxed at the rate of two 
cents per pound; salt, six cents per hundred pounds; to- 
bacco, from fifteen to thirty-five cents per pound; cigars, 
from three to forty dollars per thousand ; sugar, from two 
to three cents and a half per pound. Distilled spirits were 
taxed progressively: first at twenty cents, and finally at 
two dollars per proof gallon. 

But the most curious and complex taxes were those im- 
posed on the various products of what may be termed 
ordinary manufacturing industry — a tax, by intent or con- 

* Finance Report, 1863, p. 3. 



INTERNAL TAXES ON INDUSTRY. 21 

struction, being first imposed on the raw material, and 
then on the total or increased value, according to circum- 
stances, of each successive stage of its elaboration up to 
the finished product. And, as if this was not enough, 
every manufacturer was compelled to take out an annual 
license, while the goods produced, if sold by dealers or 
agents independent of the manufacturers, were subject to 
an additional tax of one tenth of one per cent, reckoned 
upon the amount of sales. This tax upon manufactures 
and products, with the exception of a few articles, was at 
first fixed, in 1864, at an average of five per cent; but in 
1865 the rate was increased twenty per cent, making the 
tax for most articles six per cent. 

Under the operation of this system the Government 
actually levied and collected on many articles of finished 
industrial products a tax of six per cent, the effect of 
which may be thus illustrated: Many manufacturing 
establishments sold products annually to three times the 
amount of their invested capital. If the capital invested 
was one hundred thousand dollars and the sales three 
hundred thousand, the tax on that business was eighteen 
thousand dollars, or eighteen per cent on the cost of the 
establishment. 

The sales of its products by a manufacturing establish- 
ment are, however, no indication of its profits. It may 
make and sell to the amount of a million dollars without 
making a dollar of profit, but that, under the law, was no 
reason for the non-assessment and non-collection of a tax 
of sixty thousand dollars on the value of the product rep- 
resented by its sales. 

Again, the effect of the tax on every stage of elabora- 
tion of a manufactured product may be illustrated by a 
great variety of actual examples. Thus, in the case of 
the manufacture of umbrellas and parasols, it was shown 
that separate taxes were paid, first, on the sticks or sup- 
porting rods; then upon the handles, if carved or turned 
separately, of bone, wood, or ivory; then, in like manner, 
upon the brass runners, the tips, the ribs, the cloth com- 
posing the cover, the elastic band which fastened the cover 
when closed, the rubber of which the band was composed, 
the button to which it was attached; and finally upon the 
umbrella itself, when the separate parts were aggregated, 



28 THE THEORY AND PRACTICE OF TAXATION. 

and thereby converted into a finished product. And if 
any of the constituents of the umbrella — as the ivory, the 
silk, or the metal — were of foreign production, the same 
were subjected on coming into the country to an import 
duty in addition. 

In the case of books and pamphlets, it was proved by 
the New York Publishers' Association that, including the 
license and income taxes, the finished book and its con- 
stituent materials paid from fifteen to twenty separate and 
distinct taxes before it came to the reader — the paper and 
its constituents, the cloth, the glue, the starch, the leather, 
the slaughtered animal whence the hide furnishing the 
leather was obtained, the dyes with which the cloth or 
leather was coloured or stained, the thread, the gold leaf, 
the type metal, the type, and the printing machinery ; and 
then, when the whole was combined, the finished book paid 
an additional tax of six per cent, which was levied not 
upon the cost of manufacture but upon the price at which 
the book was sold. In addition to all these taxes, the 
manufacturer or publisher paid for the privilege of doing 
business an annual license tax, and an income tax of from 
five to ten per cent on his profits, if he had any. 

In short, it was as if a frontier line had been drawn 
about each individual article or product in the nation, 
across which nothing could pass without being submitted 
to an exaction. 

Besides these taxes on manufactured products of the 
character specified, a tax of from three to six per cent was 
imposed on repairs when the value of the article repaired 
was increased by reason of the repairs to the extent of 
ten per cent; and a further tax of six per cent on what 
was termed " increased values," or the additional value 
given to any article, which had either paid an import or 
internal tax, by being " polished, painted, varnished, 
waxed, gilded, oiled, electrotyped, galvanized, plated, 
framed, ground, pressed, coloured, dyed, trimmed, or orna- 
mented." 

The examples of difficult and nice adjudication experi- 
enced in enforcing these two classes of taxes are so curious 
as to justify somewhat more than a passing notice. Thus, 
if a worker in tin or iron made a stove at one hour and in 
the next hour repaired a stove to the extent of more than 



TAX ON REPAIRS. 29 

ten per cent of its value, he paid on the product of his first 
hour's wbrk a tax of six per cent, and on his second three 
per cent. In like manner, a blacksmith making a taxable 
article, and then repairing one exactly like it, was liable 
to the payment of the two classes of taxes ; and the theory 
of the law, furthermore, was that both the tinsmith and 
the blacksmith kept a separate and distinct account of 
their different transactions. Again, if a worker in wood 
repaired a wheelbarrow worth one dollar, and by so doing 
added ten cents to its value, the increased value was taxable. 
But if, on the other hand, he repaired a carriage or piano- 
forte worth five hundred dollars, no tax accrued unless the 
value of the repairs exceeded ten per cent, or fifty dollars. 
The following absurd case was presented for adjudication 
under these statutes : 

A wheelwright repaired a carriage to the extent of eight 
per cent. The owner then passed it successively to a 
blacksmith, a painter, and an upholsterer, neither of whom 
added repairs to the extent of ten per cent, or knew the 
value of previous repairs or the value of the carriage 
before it was repaired. The question then was, Shall the 
repairs, however extensive, go untaxed, or shall the owner 
be taxed? The construction of the law was, that the tax 
must be assessed on the manufacturer, or persons receiv- 
ing pay for the work, and that the owner could not be 
the manufacturer unless he furnished the materials, in 
whole or in part, for making the repairs; and then the 
further question arose, whether the subject of repair in 
the shape of the old carriage furnished by the owner was 
a material for making the repair, and thus constituted the 
owner a manufacturer, and as such liable to taxation. 

In another case the question came up whether the pub- 
lishers residing in one assessment district and having their 
books printed and bound by contract in another, were to 
be regarded as manufacturers of the books; or whether 
the printers and binders who executed the work were to 
be so regarded and taxed. And in two instances, in two 
contiguous districts in the State of Massachusetts, the law 
was interpreted in both ways, or in one way in one dis- 
trict and another way in another district; and the parties 
interested submitted rather than incur the trouble and 
expense of contesting the matter before the courts. 



30 THE THEORY AND PRACTICE OF TAXATION. 

In fact, it is safe to say that no more complicated and 
absurd questions have ever seriously occupied the minds of 
educated men since the discussions of the schoolmen in the 
eleventh and twelve centuries (as, for example, as to how 
many angels could stand at once on the point of a fine 
needle), than were evolved from the tax system of the 
United States during and for some time after the war 
period. 

We have said that the people of the United States sub- 
mitted to such a system. They did more. For such was 
the fervour of patriotism and the determination to push 
the war to a successful issue, that they rejoiced in it ; and 
during the continuance of hostilities there was no move- 
ment or protest against the system which found any nota- 
ble response among the masses. The country was rich, 
and its accumulated resources had not for two generations 
been subjected by either the national or State governments 
to extraordinary taxation. Wealth, moreover, was very 
uniformly distributed, and the people pointed with pride 
to the annually increasing receipts of revenue under the 
new system; which, starting with $41,000,000 of internal 
revenue in 1863, rose rapidly to $117,000,000 in 1864, 
$211,000,000 in 1865, and culminated in 1866 with the 
large sum of $310,000,000, making the total revenue for 
that year, drawn from all sources by so-called taxation, 
$559,000,000, the largest sum contributed in any one year 
for the support of any Government by the free consent of 
its people. 

So long, moreover, as the war lasted, the attempts to 
evade taxation by illicit methods were exceptional and in 
amount inconsiderable. The demand for most manu- 
factured and agricultural products, owing to the enormous 
consumption of the armies and the withdrawal of labour 
from its accustomed vocations by enlistments, was fully 
equal to or in excess of supply. Prices rose rapidly with 
every increasing taxation- or additional issues of paper 
money,* and under such circumstances the fiscal require- 

* Among the absurd theories put forth in justification of an 
extravagant issue of (irredeemable) paper money was a favourite 
one, that such a policy was a matter of necessity to make money 
easy, in order that the securities (bonds) representing Government 
loans should be easily floated ; the one uppermost idea in the heads 



SUBMISSION TO TAXATION. 31 

ments of the war were not regarded by the majority of 
producers as oppressive. But, on the contrary, counting 
the taxes as elements of cost and reckoning profit as a per- 
centage of the whole cost, it was generally the case that 
the aggregate profits of the producer were actually en- 
hanced by reason of the taxes, to an extent considerably 
greater than they would have been had no taxes whatever 
been collected. Indeed, it was not infrequently the case 
that the manufacturers themselves were the most strenu- 
ous advocates for continued and rapidly increasing taxa- 
tion, with a view of realizing thereby, through an advance 
in prices, large additional profits on products, or con- 
stituents of products, previously assessed or imported at 
lower rates of (customs) duties, and to bring about such 
advances influence and money were used without scruple. 
Thus, in the case of distilled spirits, the taxation was ad- 
vanced in successive years from twenty cents per gallon to 
sixty cents, next to a dollar and fifty cents, and finally to 
two dollars per gallon, and in each of these instances, and 
particularly after the imposition of the first two and low- 
est rates, the distillers and speculators reckoned, with a 
great degree of certainty, that a further large advance 
would be enacted, and that the new law would not be made 
retroactive or applicable to spirits distilled and assessed 
previously and at lower rates. In this they were not dis- 
appointed, for Congress, under the influences to which it 
was subjected, did virtually legislate in each instance in the 
manner expected, and thus gave occasion for the v realiza- 

of the Government officials having been, apparently, that in the 
floating thus contrived the bonds alone would possess the property 
of buoyancy. But in this they were mistaken. The bonds indeed 
floated, but everything else floated with them; or, to borrow the 
language of a writer of the period (who criticised this experience 
from the humorous point of view), "the bonds were floated, but 
by just about the same operation as that by which things are 
floated in the suburbs of a town or city submerged in a heavy 
freshet — hencoops floated, cellars floated, streets floated, barge 
houses and outhouses floated, stray children and first floors floated, 
all creation floated and floated together." The market for five- 
twenties was made easy, the market for flour, beef, cotton, and 
military stores, of which the Government was compelled to pur- 
chase immense quantities, was made particularly easy. The whole 
country was put under water and remained so for a considerable 
period after the war terminated. 



32 THE THEORY AND PRACTICE OF TAXATION. 

tion of profits in strict conformity with law by the holders 
of stocks made in anticipation of the several advances, 
which can not be estimated at a less aggregate than 
one hundred million dollars. Thus, the evidence before 
the United States Ee venue Commission in 1865-66 
showed that there was on the 1st of January, 1864, a 
stock of tax-paid distilled spirits, made in anticipation of 
an increased tax, sufficient to meet all the requirements 
of the country for a period of six months, and on each 
gallon of this quantity, a profit or revenue, which did not 
accrue to the Government, of from sixty cents to a dollar 
and forty cents per gallon was realized.* And yet, with 
this lesson of costly experience before it, the Fifty-third 
Congress, in advancing the tax on distilled spirits from 
ninety cents to a dollar and ten cents per gallon, afforded 
again such facilities to distillers and speculators, for an- 
ticipating such advance, as to legislate into their pockets 
at least ten million dollars. 

In the case of cotton, which advanced mainly by reason 
of conditions affecting its production or distribution, it 
was shown by actual calculation, in respect to one manu- 
facturing corporation in New England, that if they had 
at the commencement of the war burned their mills, lost 
their insurance, and sunk their capital other than was 
invested in cotton, and had subsequently sold their cotton at 
the highest price obtainable in place of manufacturing it, 
the result would have afforded to the stockholders an annu- 
ity of at least twelve per cent on their original investments. 

How much the cost of the war and its expression in 
the form of debt were unnecessarily increased by this state 
of affairs, has not until very recently been taken into 
account by writers on the fiscal history of this period, and 
probably can not be accurately estimated. But the fol- 
lowing data throw great light on the subject : Thus, assum- 
ing the general average of prices in the loyal States of the 
Union before the war, or, more precisely, in 1860, at 100, 
the average from 1860 to 1865 was 18(5.71. But for the 
last year of the war, or in 1865, it was 216.81, and it was 
during this latter period of greatest increase in prices 
that the heaviest purchases were made by the Government 

* This is more fully developed in the next chapter. 



DISCONTENT OVER TAXATION. 33 

on account of munitions and supplies. The increased cost 
of the war by reason of this increase in the price of com- 
modities, which in turn may be in a great degree attributed 
to the use of irredeemable paper money invested with legal- 
tender quality, has been estimated by Mr. Edward Atkin- 
son at over a thousand million dollars, and the interest 
on this increased cost another equal sum. By so much, 
furthermore, as these supplies and other necessaries of life 
were increased in price through the depreciation of the 
currency, those who rendered personal service in the army 
and navy were deprived of what ought to have been the 
purchasing power of the payments made to them by the 
Government for such service. 

With the close of the war a marked change speedily 
occurred, in the nature of discontent, in the temper of 
the people in respect to taxation. But this discontent at 
the outset was restricted almost exclusively to the so- 
called " internal revenue taxes," and extended in little or 
no degree to the war taxes imposed on imports; which 
last, so long as the internal revenue taxes continued to be 
levied upon every manufactured product, and also upon 
the separate constituents of such product, were not only 
wholly justifiable, but absolutely necessary, if the fiscal 
burdens of the war between the domestic producers and 
their foreign competitors were to be equalized. In some 
instances, through oversight or neglect, the tariff taxa- 
tion was made actually less upon the imported article than 
was the internal taxation on the domestic product manu- 
factured from it; one illustration of which was, that the 
charges imposed on the import of Manila rope were fifty- 
six dollars per ton, while the internal taxes on the rope 
manufactured in the United States from the Manila fibre 
ranged from forty-eight to seventy-three dollars per ton. 

It soon became evident that the country could not en- 
dure for any great length of time the war system of taxa- 
tion, and, furthermore, would not, when a return of peace 
had made its continuance unnecessary.* And, pending 

* The imperative necessity of a speedy abatement of the in- 
ternal revenue taxes after the termination of the war finds strik- 
ing illustration in the following examples of actual experience. 
Thus the tax of six per cent, levied and collected during the fiscal 
year 1864-65, on the value of the products of the woollen industry 



34 THE THEORY AND PRACTICE OF TAXATION. 

its modification for the purpose of reduction, a desire to 
evade the payment of taxes everywhere manifested itself, 
until it seemed at one time as if the whole country and 
the Government itself were becoming corrupted ancb de- 
moralized. For example, the revenue receipts from the 
income tax, without any change in the law, declined from 
$72,982,000 in 1866 to $66,014,000 in 1867; and those 
from a uniform tax on distilled spirits, from about $29,- 
000,000 in 1867 to a little in excess of $14,000,000 in 1868. 
It was under such circumstances that the Eevenue 
Commission entered upon its prescribed duties. The work 
of investigation devolved mainly on its chairman, the 
second member being debarred by age and feeble health 
from any active exertion; while the third assumed from 
the outset that the best and most feasible way of meet- 
ing the financial difficulties of the situation was to abandon 
the "whole system" (of existing taxation) "in the short- 
est time consistent with the general interests of the coun- 
try," and, by an amendment to the Federal Constitution, 
authorize and require the Federal Government to levy 
" a duty, payable in lawful money, of one percentum per 
annum" on the income of all interest-bearing indebted- 
ness issued by the United States and payable in lawful 
money ; and " a duty, payable in specie, of seven tenths 
of one per centum on the principal of all indebtedness 
of the United States, which shall belong to any person 
or corporation, and the interest on which may be payable 
in specie." He was also of the opinion that such taxes 
on the income or principal of the indebtedness of the 
United States should be "in addition to any ordinary 
duty or tax equally imposed upon all incomes, or directly 
upon all personal and real property within the United 
States subject to taxation." * 

in Massachusetts alone ($48,430,671) was equivalent to nearly 
twenty per cent on the whole capital ($14,735,671) invested in this 
business; while the tax on the value of boots and shoes manu- 
factured in the same State during the same year ($52,915,243) was 
equal to thirty per cent on the whole capital employed ($10,067,474). 
* A short memoir of Mr. Colwell was read by Henry C. Carey, 
in 1871, before the American Philosophical Society. A list of his 
writings is given at the close, and the suggestions quoted are 
doubtless in Financial Suggestions and Remarks, published in 1867. 
I have been unable to see a copy of this pamphlet, or to trace any 
writing of Mr. Hayes embodying the proposition in the text. 



WANT OF RELIABLE STATISTICS. 35 

A subsequent report to this effect was not received with 
any marked disfavour by the general public, and had the 
indorsement of not a few leading American bankers and 
capitalists. As the average annual rate of interest accru- 
ing on the market price of the gold bonds issued by the 
United States from January, 1862, to January, 1866, 
was 8.82 per cent, and on investments in the debt of the 
United States payable in lawful money, from 1863 to 1866, 
was 10.68 per cent, the proposition to levy a tax of one 
per cent on the income or principal of the same did not 
appear unreasonable, especially in the case where no ex- 
emption from taxation was stipulated in the contract for 
these issues. But neither the author of the report nor 
its indorsers could have anticipated that within little more 
than five years after it was submitted to Congress, the 
Federal Government could have borrowed $185,000,000 
at four and a half per cent interest; and that twenty-five 
years afterward would be able to renew a debt of $25,- 
364,500 at two per cent per annum, or at a rate fifty per 
cent less than loans on the best corporate or private securi- 
ties would have at the same time commanded. 

The method of prosecuting the work contemplated by 
Congress of the commission, was at the outset a matter of 
no little embarrassment. There was practically no ma- 
terial or basis to work on, except the bare statutes au- 
thorizing war taxes, and no official collection of these was 
published by the Government until two years after the 
commencement of the war. There was no bureau of sta- 
tistics in the Treasury, and in this department of the 
Government the officials to whom was assigned the duty 
of collecting and publishing reliable data relative to the 
trade and commerce of the country were untrained. No 
full and reliable statistics concerning any branch of trade 
or industry in the United States, with possibly a very few 
exceptions, were then, or ever had been, available. The 
Treasury received returns of the aggregate of revenue col- 
lected and the sources whence it was derived; but these 
returns were rarely, if ever, accompanied by any sugges- 
tions, derived from administrative experience, of any 
value. The commercial returns from the customs were 
hardly worth the paper on which they were written. Thus, 
for example, when the duty on the importation of coffee 



36 THE THEORY AND PRACTICE OF TAXATION. 

came up for consideration as a source of revenue, the value 
of the coffee imported during the fiscal year 18 64-' 6 5 was 
officially returned at ten and a half cents per pound, while 
its average invoice price, according to the trade of New 
York for the same period, was not less than thirteen cents. 
Again, according to the Treasury statement, the aggre- 
gate imports of coffee for the same year were 104,316,581 
pounds. Of this amount 82,353,000 pounds, which were 
retained for domestic consumption, had a returned value 
of only six and four tenths cents per pound, while the 
value of 21,962,000 pounds of the same imports which 
were exported during the same year had the extraordinary 
value of nearly twenty-five cents per pound. For the year 
1863 the Treasury reported an aggregate import of spirits 
distilled from grain of 1,064,576 gallons, hut of this quan- 
tity only 45,393 gallons were entered at the ports of Bos- 
ton, New York, Philadelphia, Baltimore, and San Fran- 
cisco, leaving an inferential import of 1,019,183 gallons at 
other, ports of the loyal States that practically had no 
foreign commerce. 

In the Bureau of Internal Eevenue a better system pre- 
vailed; but this department of the Treasury being always 
overburdened with work, and its service largely rendered 
by assessors and collectors who were destitute of business 
training, contributed but little in the way of deductions 
from experience. It had, moreover, at one time as its head 
an official who subsequently in a higher position refused 
to allow data to be collected in respect to certain taxes, 
on the ground that the less the people knew about such 
matters the better it was for the Treasury. 

Another great source of difficulty experienced by the 
commission in conducting investigations with a view of 
arriving at any correct estimates of the prospective revenue 
of the country was the abnormal condition of every branch 
of trade and industry after 1861, due primarily to the war 
disturbances, and next to the frequent alterations in the 
rates of taxation. Every advance made in tariff, or in- 
ternal revenue taxes, was anticipated to such an extent 
by importers, manufacturers, dealers, and speculators that 
the Government could not fairly test the capacity of any 
one of its great and legitimate sources of revenue. Thus, 
for example, the almost incredible profits made by reason 



METHOD OF INVESTIGATION. 37 

of anticipation of the large and repeated advances in the 
taxes on distilled spirits have already been pointed out. 
Of cigars, in like manner, it was estimated that above 
eighty millions had been made and stored at one time in 
the city of New York alone, in anticipation of a higher 
tax; and in the case of the comparatively insignificant 
article of matches, on which the tax was only one cent 
per bunch, the stock accumulated in anticipation of an 
advance of tax was so large that it was not entirely ex- 
hausted for a subsequent period of three years. 

In the absence of any specific instructions, either from 
Congress or the Secretary of the Treasury, it was difficult 
for the commission to form an opinion as to the best 
method of entering upon the comprehension and reform of 
a scheme of taxation which embraced almost every form 
of tax that the ingenuity of man could devise, and with 
an incidence on almost every form of property, business, 
profession, or occupation that was capable of yielding 
to the State a revenue. The conclusion arrived at, after 
no little consideration, involved a complete abandonment 
of any idea of endeavouring to enter upon and comprehend 
the whole field of inquiry at the outset; and in its place, 
and in accordance with the maxim attributed to Emerson, 
that the eye sees only what it brings to itself to see, it was 
determined to take up and study specifically the sources 
of public revenue in the order of their importance; and 
give no attention to any other subject, or attempt to 
theorize, until everything that domestic experience or the 
experience of other countries could teach concerning them 
had been made familiar. In practically carrying out this 
idea, the chairman of the commission put himself in direct 
and frequent communication with revenue officials and 
representative business men from every section of the 
country; and availing himself of the power to take testi- 
mony, under oath, he often came into the possession of 
important facts which in daily life had been screened from 
the eye of the public. The result was that the commis- 
sion presented to Congress, through the Secretary of the 
Treasury, in January, 1866, a report which gave for the 
first time a full, clear, and exact statement of the curious 
and complex scheme of internal and customs revenue that 
had been evolved, as it were, out of the financial necessities 



38 THE THEORY AND PRACTICE OF TAXATION. 

contingent on the prosecution of a gigantic war : which in- 
volved the raising by taxation during the war period (and 
exclusive of loans) of an aggregate of over $2,000,000,000, 
and a not infrequent daily disbursement (expenditure) 
of over two million dollars; and in addition to this fea- 
ture the report contained special and elaborate exhibits 
on distilled spirits, fermented liquors, petroleum, cotton, 
tea, coffee, sugar, spices, proprietary articles, and patent 
medicines as sources of Government income, with esti- 
mates of the amount of revenue which the Treasury might 
annually expect if taxation at various rates on the same 
was to be continued ; the whole being really the first prac- 
tical attempt in the United States to gather and use na- 
tional statistics for great national purposes.* 

On the termination by statute of the Eevenue Commis- 
sion, in January, 1866, its chairman was appointed to an 
office specially created by Congress, for a period of four 
years, with the title of " Special Commissioner of the 
Eevenue " of the United States ; and the duties of which 
were thus defined by statute : 

" He shall from time to time report through the Secre- 
tary of the Treasury to Congress, either in the form of hill 
or otherwise, such modifications of the rates of taxation, 
or of the methods of collecting the revenues, and such 
other facts pertaining to the trade, industry, commerce, 
or taxation of the country as he may find by actual observa- 
tion of the law to be conducive to public interest" 

In this office, and invested with large powers, its in- 
cumbent entered upon the work of co-operating with the 
appropriate committees of Congress — " Ways and Means " 
of the House and " Finance " of the Senate — in recon- 
structing the then existing and extraordinary system of 
the United States internal revenue; and under his initia- 
tion and supervision were originated almost all the re- 
forms in this department of the Government that were 
considered or enacted by Congress between the close of 
the war and the year 1870; namely, the redrafting of 
nearly the whole body of complicated and often conflicting 



* Reports of a Commission appointed for a Revision of the 
Revenue System of the United States, 1865-'66; Washington, 1866, 
p. 483. Some of the special reports were issued separately. 



LABOR OF THE COMMISSIONER. 39 

statutes; the reduction and final abolition of the taxes on 
crude products — especially cotton, salt, lumber, petroleum, 
and the metals — and most of the taxes on manufactures; 
the creation of supervisory districts and the appointment 
of supervisors; the origination of the use of stamps for 
the collection of taxes on distilled spirits, fermented 
liquors, tobacco, and the sales of stockbrokers (the last in 
place of a general tax of one twentieth of one per cent 
on sales) ; and the creation and organization of the Bureau 
of Statistics as a branch of the national Treasury. These 
modifications brought the internal revenue duties within 
a reasonable compass, introduced systems where the want 
of it was working mischief, and by their ready application 
in administration reconciled the people to a maintenance 
of important sources of revenue and a continuance of 
taxes, which have by their stability and steady increase 
enabled the Government to meet financial exigencies other- 
wise awkward and dangerous. The service thus rendered 
met with recognition at the time both in and out of Con- 
gress, and was strongly indorsed by those most interested 
— the head of the Treasury and the industries taxed.* 

The work of taking down the vast and complicated 
structure of internal taxation, which had been built up 
during the war, having been once seriously entered upon 
by Congress (in 1866), it was prosecuted so vigorously 
that in the comparatively short space of three years the 



* " I do not believe that any man appointed by the Government 
in the civil war has done for his country more work, and more 
valuable work, than David A. Wells. Into the financial chaos 
resulting from the war he threw the whole weight of a strong, 
clear mind, guided by an honest heart, and he has done more, in 
my judgment, to bring order out of chaos than any one man in 
the United States." — Speech of General James A. Garfield, Member 
of Congress, United States House of Representatives, July 13, 1868. 

" There are few of my official acts that I look upon with more 
satisfaction than the appointment of David A. Wells to be Revenue 
Commissioner. All the reports that were made by him exhibited 
the most careful, painstaking, and intelligent investigation. In 
clearness and accuracy of statement, and in logical force, they have 
not been surpassed on either side of the Atlantic. Their ability 
was admitted, even by those who disagreed with the writer in 
his conclusions." — Men and Measures of Half a Century, oy Hugh 
McCulloch, Secretary of the Treasury during the Administrations 
of Presidents Lincoln, Johnson, and Arthur. 



40 THE THEORY AND PRACTICE OF TAXATION. 

aggregate annual receipts from such taxes were reduced 
from $310,906,000 in 1866 to $160,039,000 in 1869— a 
reduction of $150,867,000— and to $102,644,000 in 1872, 
a further reduction of $57,395,000; while the sources of 
revenue, the annual receipts from each one of which were 
specifically reported, were reduced from about two hun- 
dred and seventy-five in 1866 to nominally sixty-six in 
1872; but practically to three — distilled spirits, fermented 
liquors, and tobacco — the receipts from which alone in 1893 
were $150,865,000 as compared with $91,464,000 in 1872. 
It should, however, be noted that this remarkable increase 
of revenue, coincident with a large reduction in the num- 
ber of taxed articles, was due mainly to an increase of con- 
sumption consequent upon an increase of population dur- 
ing the period under consideration (26,230,000) rather 
than to any increase in the rate of taxes imposed upon the 
remaining sources after 1872. 

Of many other curious and instructive economic ex- 
periences, consequent upon the rapid and radical changes 
in the fiscal policy of the United States during the period 
under consideration, the following seem especially worthy 
of notice: The first abatement or repeal of internal taxa- 
tion on various articles after the war — to the extent of 
about fifty millions in 1866 — was not attended with any 
general and immediate reduction in the prices of the arti- 
cles relieved, corresponding to the reduction of taxation, 
but with rather an increase of prices. The explanation 
of this circumstance was, that the continuance of the heavy 
war taxation, for a period after the extensive war demands 
of the Government for various commodities had ceased, 
had diminished their production to a point below what 
would have been the normal consumption of the country; 
and that, therefore, prices increased concurrently with the 
abatement of taxes and a renewal of demand. Such a re- 
sult was, however, but temporary, and the condition of 
affairs was soon reversed. The supply of manufactured 
products quickly became equal to or exceeded demand. 
The price of products fell faster than the price of either 
labour or capital, and taxation, which formerly had been 
paid wholly from profit, now fell mainly upon capital. 
The general result was a year (1867) of great industrial 
and commercial depression. 



APPLICATION OF STAMPS. 41 

The enlarged use of stamps as machinery far the col- 
lection of taxes, and their novel application to fermented 
liquors and distilled spirits, were attended with very strik- 
ing results. In the case of fermented liquors (beer), it 
was established almost beyond doubt by the Eevenue Com- 
mission that previous to 1866 the Government was de- 
frauded of its legitimate revenue to an extent of forty 
per cent, involving an absolute annual loss of about 
$6,400,000. The adoption, with no little hesitation by 
Congress in 1866, of the principle, that the payment of 
the tax on this commodity should be effected by the pur- 
chase and affixing a stamp to each barrel sold and removed 
from the place of manufacture, with the additional re- 
quirement that the stamp should be cancelled by the re- 
tailer or consumer at once, increased the revenue from 
$3,657,000 in 1865 to $5,115,000 in 1866— the year of 
first application — and to $5,819,000 in 1867; and ever 
since has proved most effective and satisfactory. 

A recommendation to make use of stamps for the col- 
lection of taxes on tobacco was acceded to by Congress in 
respect to smoking tobacco and snuff, but was refused in 
respect to chewing tobacco, cigarettes, and cigars ; in the 
latter case on the assumption that it was impracticable to 
affix an adhesive paper stamp on the body of a cigar, while 
the " trade," not long afterward, and at its own volition, 
demonstrated its entire feasibility. Had the recommen- 
dation in this particular found favour, it would have re- 
sulted in an accretion of many millions to the national 
Treasury, a relief from espionage and other frictions to 
the trade, and a larger diminution of administrative ex- 
penditures both to the trade and the Government. 

The experience of the Federal Government in its taxa- 
tion of distilled spirits is extraordinary, and so replete 
with instruction to economists, moralists, and social re- 
formers as to merit a more extended notice. 

The product of distilled spirits in the United States 
for the year 1860, as returned by the census, was about 
90,000,000 gallons. It would be an error to assume that 
all of this immense production of spirits was used for 
intoxicating purposes, or in the way of stimulants, inas- 
much as the extreme cheapness of spirits or alcohol in the 
United States during the period under consideration occa- 
4 



42 THE THEORY AND PRACTICE OF TAXATION. 

sioned their employment in large quantities for various 
industrial purposes; which uses were subsequently in a 
great degree discontinued when the price of spirits was 
enhanced from one hundred to one thousand per cent and 
upward by Federal taxation. For 1860-61, the year pre- 
ceding the war, the average price of proof spirits in Cin- 
cinnati was 14.40 cents per gallon. 

From 1822 to 1862 distilled spirits, in common with 
all other domestic industrial products, were exempt from 
Federal taxation. In the latter year, under the necessity 
for revenue occasioned by the war, Congress imposed a 
tax of twenty cents per proof gallon on all distilled spirits 
of domestic production. This tax went into effect on 
the 1st of September, 1862, and continued in force until 
March, 1864. The total revenue derived from this source, 
including the receipts from licenses for rectifying, vend- 
ing, and the like, for the fiscal year 1863, was $5,176,530. 
The receipts from the direct tax on the spirit itself were 
$3,229,990, indicating a domestic production of only 
16,149,954 gallons as compared with a production of 
90,000,000 gallons returned under the census of 1860, 
three years previous. The explanation of this result is 
to be found in the fact that a large amount of whisky 
was manufactured in anticipation of this low tax, and that 
there were doubtless some evasions of the tax after it was 
enacted — conditions that were repeated, as will be pres- 
ently shown, in a greater degree on every occasion when 
an advance in the tax was enacted. 

The tax of twenty cents continued in force until March 
7, 1864, when the rate was advanced to sixty cents per 
gallon. The revenue accruing under these two rates for 
the year ending June 30, 1864, was $28,431,797, and the 
number of gallons returned as having been assessed was 
85,295,393. The striking discrepancy between the num- 
ber of gallons taxed in 1864 at twenty and sixty cents -and 
the number taxed the previous year (1863) at twenty 
cents again finds explanation in the fact that when it 
became evident to the distillers that the fiscal necessities 
of the Government would soon compel an advance in the 
tax upon their product, and that such increase would not 
be made applicable to stocks on hand on which the lower 
rates had been assessed and paid, they pushed their pro- 



TAXATION OF DISTILLED SPIRITS. 43 

duction to the uttermost in order that they might take 
advantage of the great increase in the market price of all 
spirits after the advanced rates had taken effect ; all which 
anticipations were fully realized. Thus, of the 85,295,393 
gallons on which the Internal Eevenue Bureau assessed 
and collected the spirit tax for 1864 — 69,000,000 in excess 
of the product of the preceding year — at least 70,000,000 
gallons were manufactured prior to the 7th of March and 
were released from Government control by the payment of 
the twenty-cent tax only; and as after the 7th of March, 
1864, the market price of the greater part of this in- 
creased product, which had not been allowed to pass into 
consumption, was advanced in accordance with the ad- 
vance in the tax — i. e., forty cents per gallon — it is clear 
that $28,000,000 at least were thus at once legislated into 
the pockets of the distillers and speculators concerned. 

Again, immediately after the imposition of the sixty- 
cent rate in March, 1864, nearly all the distilleries once 
more suspended operation; the country was acknowledged 
to be overstocked with tax-paid whisky, and the Govern- 
ment almost ceased to collect taxes upon its manufacture. 
In May, however, the project for a further increase in the 
rates began to be again agitated in Congress, and as soon 
as its realization became probable, all the distilleries 
speedily resumed operations. How great at that time was 
the capacity of the loyal States for production may be 
inferred from the circumstance that the number of dis- 
tilleries in the country, which according to the census of 
1860 was 1,138, had increased in 1864 to 2,415. 

On the 1st of July, 1864, the tax was again advanced 
from sixty cents to a dollar and a half per gallon; and 
during that month the entire product of the country of 
which the revenue officials could take cognizance was only 
697,099 gallons. How great a " stock on hand," the result 
of manufacturing under the twenty and sixty cent rates 
of tax, was carried over the 1st of July and experienced 
the advance of ninety cents per gallon in market price in 
consequence of the advance in the tax from sixty cents 
to a dollar and a half, can not be accurately known; but 
60,000,000 gallons would certainly be a low estimate; and 
on this amount the profit that accrued to private interests 
was at least $50,000,000. 



44 THE THEORY AND PRACTICE OF TAXATION. 

On the 1st of January, 1865 (the succeeding year), the 
tax was further advanced to two dollars per proof gallon, 
when all the operations above described were repeated, 
with all the benefits to private or speculative interests de- 
rived from former experiences, and a consequent very large 
extension of the sphere of participants in the resulting 
profits. 

In short, all the available evidence indicates that the 
profits realized by distillers, dealers, and speculators, 
through congressional legislation having reference to the 
taxation of distilled spirits from July 1, 1862, to January 
1, 1865 — a period of two and a half years — and exclusive 
of any gains accruing from evasions of taxes, and with 
every allowance for overestimates, must have approximated 
$100,000,000. 

After the establishment of the two-dollar rate on the 
1st of January, 1865, there was again a period of inactivity 
on the part of those interested in the manufacture of dis- 
tilled spirits. The stocks on hand, manufactured in an- 
ticipation of the advances in rates, were very large, and, 
the markets being oversupplied, there was little legitimate 
inducement for activity on the part of distillers. The 
profits realized or made prospectively certain had been, 
moreover, enormous, and no further advance in the rate 
of tax could be anticipated. Under such circumstances 
there was an apparent disposition on the part of manu- 
facturers and speculators to wait and see what develop- 
ments in legislation and business would follow the termi- 
nation of the war in favour of the Union, which was then 
everywhere recognised as approximately certain. These 
developments were not long in manifesting themselves. 

The tax of two dollars per proof gallon (amounting 
to more than 1,500 per cent on the average cost of produc- 
tion) and the enormous profits contingent upon the eva- 
sion of the law, coupled with the abundant opportunity 
which the law through its imperfections, and the vast 
territorial area of the country, offered for evasion, created 
a temptation not to be resisted. This view was taken by 
the Revenue Commission in a report to Congress through 
the Secretary of the Treasury in February, 1866 ; * and 

* This constitutes the fifth of the special reports contained in 
the Reports of the Commission, 1865-66. 



TWO-DOLLAR TAX ON SPIRITS. 45 

the chairman of the commission, after a thorough investi- 
gation of the subject and the collection and presentation 
of a large amount of evidence, expressed the opinion that 
the attempt to collect a two-dollar tax was utterly im- 
practicable, and that the longer it was retained the less 
would be the revenue and the greater the corruption. He 
also coupled this opinion with a recommendation that a 
tax of fifty cents per proof gallon, with a judicious license 
system for rectifiers and dealers, be substituted as likely 
to be most productive of revenue and most efficient for 
the prevention of illicit distilling and other revenue 
evasions. 

This report, although attracting much attention by 
reason of the singular revenue experiences of the preced- 
ing four years which it detailed (and which the public, 
with its thought concentrated on the results of the war, 
had in a great degree overlooked), found little favour in 
respect to its recommendation of tax abatement; and the 
general sentiment both in and out of Congress was ex- 
pressed by a leading member of the House of Eepresenta- 
tives, who publicly declared that " he was not ready to 
admit that the nation which had put down such a great 
rebellion at the cost of so much blood and treasure could 
not collect a tax of two dollars a gallon on whisky." * 
The two-dollar tax therefore was allowed to remain in 
force, and the tax experiences of the United States from 
1865 to 1869 inclusive, in respect to spirits, viewed from 
the standpoint of finance, economics, and morals, con- 
stitute one of the most interesting, instructive, and dis- 
graceful chapters in its history. Under the strong tempta- 
tions of large and almost certain gains, men rushed into 
schemes for defrauding the revenue with the zeal of en- 
thusiasts for new gold fields; and the ingenuity of the 
American people has never had more striking illustrations 
than were offered in their devices for evading the tax and 
providing for security against detection and punishment 
in so doing. The parties concerned in these transactions 
also showed throughout more ability than Congress and 

* Of the then leading members of Congress, only two — the late 
President Garfield and Hon. W. B. Allison, both members of the 
House of Representatives — indorsed the recommendation of the 
commissioner at the outset. . . . 



46 THE THEORY AND PRACTICE OF TAXATION. 

more shrewdness than the revenue department of the 
national Treasury; and at a later period a Secretary of 
the Treasury was obliged to resort to the use of a cipher 
fo* his telegraphic and written correspondence, in order 
to prevent the frustration of his plans for the enforce- 
ment of the laws by Treasury officials who were specially 
charged with their administration. The evidence in part 
confirmatory of these statements is as follows : 

The revenue directly collected during the fiscal year 
1866 (the first full year under the two-dollar tax) from 
spirits distilled from other materials than fruits * was 
$29,198,000, and in 1867 $28,296,000, indicating an an- 
nual product respectively of 14,599,000 and 14,148,000 
gallons. But during the succeeding year, 1868, with no 
apparent reason for any diminution in the national pro- 
duction and consumption of spirits, and with no increase, 
but rather a diminution, in the volume of imported spirits, 
the total direct revenue from the same source was but 
$13,419,092, indicating a production of only 6,709,546 
gallons. 

As the consumption of distilled spirits in this latter 
year was probably not less than 50,000,000 gallons, and as 
out of this the Government collected a tax upon less than 
7,000,000, the sale of the difference at the current market 
rates of the year, less the average cost of production (even 
if estimated as high as thirty cents in currency), must 
have returned to the credit of corruption a sum approxi- 
mating $80,000,000. 

Another curious feature developed was, that the num- 
ber of distilleries in the country increased just in propor- 
tion as the tax on spirits was augmented ; the inducement 
of the great profit to be obtained from a high rate of tax 
— the two-dollar rate especially — undoubtedly tempting 
many to engage in illicit manufacturing who would be 
unwilling to do so with a certainty of realizing a much 
smaller rate of profit. Of many curious examples of evi- 
dence to this effect, the following reference is particularly 
interesting: In the eighth collection district of the State 
of New York there was, before the internal revenue law 

* The revenue derived from the taxation of spirits distilled from 
fruits has always been comparatively small: $283,499 in 1866; 
1,145 in 1867. 



FRAUD AND EVASION. 47 

went into operation in 1862, but one distillery. When the 
first tax of twenty cents per gallon was imposed, six addi- 
tional distilleries were started. Under the sixty-cent rate 
about one dozen were in operation. But this number, 
under the two-dollar tax, increased to about forty. Fur- 
thermore, the tax collected at one distillery in the same 
district in one month in 1864, under the sixty-cent tax, 
was one third more than was paid in the aggregate by 
thirty distilleries in the district in the eight months suc- 
ceeding November, 1865, when the tax was two dollars; 
or, to state it differently, one distillery in one month in 
1864 paid $58,819, at sixty cents per gallon, while thirty 
distilleries in eight months in 1866 paid, at two dollars 
per gallon, only $33,664. For the entire country the num- 
ber of licensed distilleries, which in 1864 was 2,415, was 
returned in 1868 at 4,721 — an increase of nearly 100 per 
cent in the short space of four years. 

Thus confronted with positive evidence of astounding 
frauds which the Government that put down a great re- 
bellion virtually confessed that it could not prevent, and 
a steadily diminishing revenue from what ought to have 
been a steadily increasing source, Congress finally became 
thoroughly alarmed, and, acceding to the recommenda- 
tion of the Special Commissioner of the Revenue, reduced 
(in July, 1868) the direct tax on distilled spirits from 
A wo dollars to fifty cents per proof gallon.* 

* The statement that the tax on distilled spirits was reduced 
from two dollars to fifty cents per gallon in 1868 has been criticised 
}see letter of United States Commissioner of Internal Revenue, 
embraced in report of the Secretary of the Treasury for 1893) as 
not in accordance with the statement that the tax imposed in the 
above-mentioned year was not fifty but seventy cents per gallon. 
The only warrant for such criticism to be found in the circum- 
stance that the statute of 1868, which fixed the direct tax on spirits 
at fifty cents per gallon, and none other, also contained separate 
and independent provisions imposing licenses, taxes on capacity 
of stills, and on the sales of dealers, with some modification of the 
fees of gaugers and storekeepers; and that these additional assess- 
ments brought up the tax from fifty to seventy cents per gallon. 
But this reasoning overlooked two essential features of the act — 
namely, that the direct tax on every proof gallon must be paid 
by the distiller, owner, or other person having possession thereof, 
before removal from the distillery or warehouse; and next, that 
none of the indirect and supplementary taxes could be assessed 
or collected until after the direct tax (of fifty cents) had been 



48 THE THEORY AND PRACTICE OF TAXATION. 

The results of such legislation were immediate and 
most remarkable. Illicit distillation practically ceased the 
very hour the new law came into operation. Industry 
and the arts experienced a large measure of benefit from 
the reduction in the cost of spirits ; while the Government 
collected during the second year of the continuance of the 
new rate and system, with comparatively little friction, 
three dollars for every one that was obtained during the 
last year of the two-dollar tax. Assuming, as is war- 
ranted, that with a continuance of the two-dollar tax 
there would have been no increase in the revenue from 
distilled spirits beyond what accrued in 1868 — the last 
year of its existence — the gain in revenue to the Govern- 
ment in the succeeding two years from the adoption of 
the fifty-cent rate was at least sixty million dollars. Fur- 
thermore, but for the injudicious but popular speech (to 
which reference has been made) at an opportune mo- 
ment in committee by a statesman who had bestowed but 
little attention to the subject, the reduction of the tax 
from two dollars to fifty cents per proof gallon would 
undoubtedly have been anticipated by a year, and attended 
with like gainful results. The cost of this speech, there- 
fore, to the national Treasury may be rightfully estimated 
as at least ten million dollars. The record of this chap- 
ter of the tax experience of the United States also for- 
cibly illustrates the impolicy and disaster of embody- 
ing any fiscal policy in statute enactments without a 

paid ; the license taxes, for example, varying according to the prod- 
uct of the distillery, and payable in block, at different specified 
times. A great and novel object here sought for — namely, of dimin- 
ishing the inducements to fraud, by directing the collection of 
the direct and supplementary taxes on spirits as respects persons, 
places, and times — was fully achieved; for, although the aggre- 
gate of the direct and indirect tax on spirits undoubtedly _ in- 
creased their cost to their final consumers, the largest possible 
gain to the distiller from the evasion of the separate and compara- 
tively small indirect taxes which contributed to this increase, 
even apart from the risks of punishment involved, were too small 
to be worthy of his attention. The effort, therefore, to attempt 
to minimize by sophistical reasoning the remarkable effect of the 
reduction in 1868 of the tax on distilled spirits to fifty cents 
has no rightful claim for consideration, and unquestionably was 
prompted by a very general but unwise public sentiment, that it 
is desirable always "to subject the manufacture and sale of spiritu- 
ous and fermented liquors to exceptionally high rates of taxation. 



INCREASE OF SPIRIT TAX. 49 

previous study and full comprehension of all the elements 
involved. 

For the first but incomplete fiscal year (1869) under 
the fifty-cent tax the revenue increased to the extent of 
nearly $20,000,000, or from $14,290,000 in 1868 to $33,- 
735,000 in 1869; or, including all taxes on the manu- 
facture and sale of distilled spirits, licenses, etc., from 
$18,655,000 in 1868 to $45,071,000 in 1869. During the 
next fiscal year (1870) there was a further increase in 
the total revenue of $10,534,864, or from $45,071,000 in 
1869 to $55,606,094 in 1870. 

The specific tax on distilled spirits of fifty cents per 
proof gallon remained in force from July, 1868, to Au- 
gust, 1872, a period of a little more than four years. Dur- 
ing this period the tax was assessed and collected on an 
average production of 67,175,822 proof gallons per annum, 
yielding an average annual revenue of about $34,000,000, 
and indicating an average annual consumption for all pur- 
poses of the country of about 1.65 proof gallons per capita. 
For the period of four years immediately preceding the 
fiscal year 1869, under a tax of two dollars per proof gallon 
for three years, and a dollar and a half and two dollars for 
one year (1865), the tax was assessed and collected on an 
average annual production of only about 13,300,000 proof 
gallons per annum, yielding an average annual revenue of 
about $21,727,000, and indicating an average annual con- 
sumption of only about 0.38 proof gallon per capita. 

But, notwithstanding these satisfactory results, the law 
authorizing the reduction of the tax from two dollars to 
fifty cents per proof gallon had hardly become operative 
when agitation commenced for its repeal or modification. 
Speculators had the idea that the old scheme of increas- 
ing the tax after a little lapse of time, without making the 
increase applicable to stocks on hand, was, with its gain- 
ful prospects, again within the range of possibilities ; while 
very many extreme advocates of temperance, untaught by 
and caring nothing for the record of recent experience, 
were inclined to regard the new and comparatively low 
tax as impolitic and in the light of the removal of a bar- 
rier against the spread of intemperance. These and other 
arguments proved sufficiently potent, and in June, 1872, 
Congress, by an act which took effect in the following 



50 THE THEORY AND PRACTICE OF TAXATION. 

August, increased the gallon tax to seventy cents, and 
subsequently, in March, 1875, raised the rate to ninety 
cents per gallon, and in August, 1894, further increased 
it to a dollar and ten cents, the present rate. 

It is not necessary to recall that the experiences which 
were attendant upon every advance of the tax on spirits 
from its first imposition in 1862 to 1868 were repeated 
subsequently in 1872 and in 1875, when the increased 
rates of seventy and ninety cents were respectively en- 
acted; those of the latter date being remarkable from the 
circumstance that the frauds upon the revenue, which 
were enormous, were more directly brought home to high 
officials of the Government than at any former period, 
and constitute a chapter in the history of government by 
the people which the people may well wish forgotten. 

The above review of the experiences of the United 
States prior to 1869, in attempting to enforce the collec- 
tion of an excessively high tax on the production and 
consumption of distilled spirits, is mainly valuable in this 
connection from the economic and moral lessons deducible 
from it, which may in brief be summarized as follows : 

Whenever a government imposes a tax on any product 
of industry so high as to sufficiently indemnify and reward 
an illicit or illegal production of the same, then such 
product will be illicitly or illegally manufactured; and 
when that point is reached, the losses and penalties con- 
sequent upon detection and conviction — no matter how 
great may be the one or how severe the other — will be 
counted in by the offenders as a part of the necessary ex- 
penses of their business; and the business, if forcibly sup- 
pressed in one locality, will inevitably be renewed and con- 
tinued in some other. It is therefore matter of the first 
importance for every Government in framing laws for the 
assessment and collection of taxes to endeavour to de- 
termine, not only for fiscal but also for moral purposes, 
when the maximum revenue point in the case of each 
tax is reached, and to recognise that in going beyond that 
point the Government " overreaches " or cheats itself. 

Obviously those who in the past have shaped the policy 
of the United States in respect to the taxation of dis- 
tilled spirits for the purpose of revenue have, for the most 
part, never studied this aspect of the casp or cared to en- 



CONSUMPTION OF SPIRITS. 51 

courage any one to do so; but, on the contrary, as has 
been somewhat humorously expressed, " they have held 
out to the citizen, on the one hand, a temptation to vio- 
late the law too great for human nature as ordinarily con- 
stituted to resist, and in the other writs for personal arrest 
and seizure of property, and, thus equipped, have an- 
nounced themselves ready for business." 

The data officially collected and reported by the In- 
ternal Eevenue Department of the United States Treasury 
furnish the only reliable basis for obtaining approximately 
correct answers to the following questions: 1. To what 
extent, through a well-considered system of taxation, can 
the manufacture and sale of distilled spirits be made 
available as sources of national revenue? 2. What has 
been and is the probable per capita and aggregate annual 
consumption of this class of spirituous liquors by the 
people of the United States? The first of these questions 
is eminently pertinent to the legislator; the second, to 
the student and advocate of social reform. 

The experience derived from the taxation of distilled 
spirits previous to 1869 by the Federal authorities was so 
unnatural and, as it were, spasmodic as to debar its use 
for the determination of any general or average conclu- 
sions, and limits inquiry to the results which followed in 
subsequent years (1870-1898), under lower and more 
rational rates of taxation, and a more efficient and intelli- 
gent fiscal administration. And for the purpose of mak- 
ing a clear exhibit of these, attention is asked to the fol- 
lowing table (prepared from official data), showing (1) 
the population of the country for each successive fiscal 
year from 1870 to 1894, inclusive; (2) the quantity of 
gallons of spirits annually taxed; (3) the average per 
capita consumption for each successive year: (4) the 
amount of revenue annually collected; (5) the average an- 
nual revenue, or tax per capita; (6) the annual tax per 
gallon; (7) the average tax per gallon. 

The first point of interest which an examination of the 
above table reveals is, that the average per capita con- 
sumption of tax-paid distilled spirits by the people of 
the United States during the years 1870, 1871, 1872, and 
1873, under the tax of fifty cents per gallon, was greater 
than it has been at any subsequent period under a seventy 



52 THE THEORY AND PRACTICE OF TAXATION. 



Year 

ENDING 

June 30 


Population.* 


Quantity 
taxed.* 


Quanti- 
ty per 
capita. 


Revenue. 


Rev- 
enue 
per 
cap- 
ita. 


Tax per 
gallon. 


Aver- 
age tax 

per 
gallon. 


1870. . 
1871.. 

1872.. 


38,558,371 
39,555,000 
40,596,000 


Gallons. 

78,490,198 
62,314,628 
66,235,578 


Gallons. 

2.03 
1.58 
1.63 


Dollars. 

39,245,099 
31,157,314 

33,117,788 


Doll'rs 

1.02 
.79 

.82 




Dents. 

.50 
.50 
.50 


Cents. 

50 
50 
50 


1873.. 


41,677,000 


65,911,141 


1.58 


43,131,064 


1.03 


| 


.50 ) 
.70 \ 
.70 


65.14 


1874. . 


42,796,000 


62,581,562 


1.46 


43,807,093 


1.02 




70 


1875.. 


43,951,000 


64,425,911 


1.47 


46,877,938 


1.07 


j 


.70 ) 
.90 \ 


72.76 


1876.. 


45,137,000 


58,512,693 


1.30 


51,390,490 


1.14 


I 


.70) 
.90 C 


88.58 


1877. . 


46,353,000 


58,043,389 


1.25 


52,671,291 


1.14 


\ 


.70) 
.90 j" 


89.97 


1878. . 


47,598,000 


50,704,189 


1.07 


45,626,533 


.96 


\ 


.70) 
.90 \ 


89.99 


1879.. 


48,866,000 


53,025,175 


1.09 


47,709,464 


.08 


{ 


.50) 

.70 [ 
.90) 


89.98 


1880 


50,155,783 


62,132,415 


1.23 


55,919,119 


1.11 


v 


.70) 
.90 j" 


90 


1881.. 


51,316,000 


69,127,206 


1.34 


62,214,127 


1.24 


1 


.70) 
.90 f 


90 


1882.. 


52,495,000 


71,976,398 


1.37 


64,778,756 


1.23 


1 


.70) 
.90 \ 


90 


1883.. 

1884.. 


53,693,000 
54,911,000 


76,762,063 
79,616,901 


1.43 
1.45 


69,085,856 
71,655,211 


1.22 
1.30 


.90 
.90 


90 
90 


1885.. 


56,148,000 


69,158,025 


1.23 


62,242,221 


1.23 


j 


.70 ) 

.90 f 

.90 

.90 

.90 

.90 

.90 

.90 

.90 

.90 


90 


1886.. 
1887.. 
1888 . . 
1889 
1890.. 
1891.. 
1892.. 
1893 . . 


57,404,000 
58,680,000 
59,974,000 
61,289,000 
62,622,250 
63,975,000 
65,520,000 
66,826,000 


70,851,355 
67,380,391 
71,565,486 
77,163,529 
85,043,336 
88,473,437 
95,045,787 
99,145,889 


1.23 
1.15 
1.19 
1.25 
1.35 
1.38 
1.45 
1.48 


63,766,219 
60,642,351 
64,408,937 
69,447,175 
76,539,002 
79,626,093 
85,541,209 
89,231,300 


1.11 
1.03 
1.07 
1.13 
1.22 
1.24 
1.31 
1.34 


90 
90 
90 
90 
90 
90 
90 
90 


1894.. 


68,275,000 


88,777,387 


1.30 


79,899,647 


1.17 


\ 1 


.90 ) 
.10 J" 


90 


1895+. 


69,753,000 


75,555,742 


1.08 


74,837,396 


1.07 


j J 


.90) 

.10 J" 


99 


1896.. 


71,263,000 


68,480,720 


.96 


75,327,898 


1.05 


j ] 


.90) 
.10) 


110 


1897. . 


72,807,000 


69,979,362 


.96 


76,967,257 


1.05 


I 1 


.90 j 
..10 J 


110 


1898.. 


74,389,000 


79,764,749 


1.07 


87,741,223 


1.18 


I 1 


.90) 
..10 f 


110 



See notes for this table on the opposite page. 



QUANTITY OF TAXED SPIRITS. 53 

and ninety cent rate. Such a result is undoubtedly refer- 
able in the main to the economic law that a reduction 
in the price of a commodity encourages its consumption 
(in this instance for industrial as well as stimulant pur- 
poses), and in a degree to the fact that a fifty-cent tax, 
with its accompaniment of stringent penalties, greatly 
diminished the incentive for illicit production. A won- 
derfully striking illustration of the strength of tempta- 
tion for the evasion of the revenue created by the previous 
high taxation, which had little other reason than mere 
sentiment for its imposition, is also afforded by the fact 
that while the Government in 1872, under a tax of fifty 
cents per proof gallon, took cognizance of an average annual 
tax-paid consumption on the part of the people of the 
United States of 1.63 gallons per capita, it was only able to 
recognise in 1868, under a two-dollar tax, a similar average 
annual consumption of about 0.38 proof gallon per capita. 
The second point of interest in connection with the 
foregoing tabular exhibit is the demonstration it affords 
of the very curious variations which occurred in the suc- 
cessive years from 1870 to 1898, inclusive, in the quan- 
tity of spirits that annually paid taxes to the Government, 
and which may be regarded as constituting an approxi- 
mately accurate measure of the average annual per capita 
consumption of this commodity by the entire population 
of the country. The explanation of such changes is not 
difficult. They are in general unquestionably referable to 
immediately antecedent or contemporary changes in the 
business condition of the country, which in turn are deter- 
minative in a high degree of the popular ability to consume 
an article — like distilled spirits — of comparatively high 

* Population for 1870, 1880, and 1890 from census; other years 
calculated by the actuary of the Treasury Department. 

t In 1895 the withdrawals included 41,369,604 gallons, on which 
the tax was 90 cents; in 1896, 4,475 gallons, at 90 cents; and in 
1897, 50,206 gallons. The acting Commissioner of Internal Rev- 
enue, in a letter to the Secretary of the Treasury, dated April 3, 
1897, amply verified the predictions made in the text. After re- 
ferring to the " greatly increased incentive to fraud furnished 
by the present high rate of tax," he suggested the prompt reduc- 
tion to 90 cents, and even to 70 cents, the latter being in his opin- 
ion the highest revenue-producing rate. 

% Includes fruit brandies. 



54 THE THEORY AND PRACTICE OF TAXATION. 

cost and largely a luxury, popular tastes and habits and 
restrictive moral influences remaining constant. Thus, 
passing by the year 1870, in which there was a great in- 
crease (from altogether abnormal causes) in the number 
of gallons produced and made subject to taxation, the in- 
crease in the tax-paid product and in the average per 
capita consumption during the succeeding fiscal years 1872 
and 1873, when the business of the country was fairly 
prosperous, was regular and not inconsiderable. The com- 
mencement of the next fiscal year (1874) was signalized 
by one of the most memorable financial panics in Ameri- 
can history and a general prostration of business, from 
which last there was no decided recovery until 1879. 

During all this period the domestic production of dis- 
tilled spirits of which the Government took cognizance 
continued to decline, and the average per capita of con- 
sumption touched the exceedingly low proportions of 1.07 
and 1a) 9 gallons in the fiscal years of 1878 and 1879 re- 
spectively. With a renewal of active and profitable busi- 
ness throughout the country in 1880, the annual taxed 
production of spirits went up from 50,704,189 gallons in 
1878 to 79,616,901 gallons in 1884, and the per capita 
consumption from 1.07 gallons to 1.45 gallons in the cor- 
responding years. During the period from 1871 to 1880 
there was a decrease both in the quantity of spirits on 
which the Government was able to collect a tax and in 
the apparent per capita consumption of the people, and 
this, too, notwithstanding an increase during this same 
period of thirty per cent in the population of the country; 
1871 showing a tax on sixty-two and one third millions 
(1.58 gallons per capita), while in 1879 the tax was col- 
lected on only fifty-three million gallons (1.09 gallons per 
capita). 

The decade from 1870 to 1879 was further charac- 
terized by two periods of disturbance — which ought to 
be instructive in view of future legislation — occasioned 
by an advance in 1873 of the gallon tax, from fifty to 
seventy cents, and again in 1875 from seventy to ninety 
cents. In both cases these advances in rates were followed 
by large annual reductions in the quantity of the spirits 
taxed and in an apparent per capita consumption, which 
in turn indicated extensive revivals of illicit practices 



DEPRESSION AND CONSUMPTION. 55 

which the reduction of the tax to fifty cents in 1868 had 
nearly extinguished, and which indications were also made 
certainties by abundant direct evidence. 

The decade of 1880 to 1889 showed, on the other 
hand, an increase in the aggregate amount paying taxes 
from sixty-two and one eighth million gallons in 1880 
(1.23 gallons per capita) to seventy-seven and one eighth 
million gallons in 1889 (1.25 gallons per capita), an ag- 
gregate increase approximating a concurrent increase of 
twenty-two per cent in the population of the country. 

During the fiscal years from 1888 to 1893, inclusive, 
under a uniform and prospectively stable rate of tax, an 
apparently good and efficient administration of the law, 
and a fairly prosperous condition of the country, the 
results in this department of our national revenues were 
very exceptional and interesting. The continuous increase 
in production, in per capita consumption, and in revenue 
was remarkable, the average increase in spirits paying taxes 
having been nearly 4,600,000 gallons per annum, or in a 
ratio greater than any concurrent increase in the population 
of the country; in average per capita consumption, nearly 
one third of a gallon; in average increase in revenue of 
nearly $5,000,000 ($4,910,000) per annum, the whole cul- 
minating for the fiscal year (1893) in a product of 99,000,- 
000 gallons, an annual revenue of $89,000,000, and a per 
capita consumption of 1.48 gallons. During the same 
period the per capita consumption of all spirits, domestic 
and foreign, in Great Britain was about 1.063 gallons. 

The financial troubles and business depressions in 
Europe and other countries during the years 1892 and 
1893 do not appear to have exerted the slightest influence 
on the production and consumption of distilled spirits in 
the United States. But the advent in 1894 of a similar 
state of affairs in the latter country speedily manifested 
itself, reducing the current per capita consumption from 
1.48 gallons in 1893 to 1.3 gallons; the direct revenue 
from $89,231,000 in 1893 to $79,899,000; the current per 
capita consumption from 1.48 to 1.33 gallons, and the total 
annual revenue to the extent of $9,461,008. The returns 
for 1896 and 1897 are still more conclusive on this point. 
The quantity consumed per capita touched a lower point 
than had been reached in any year since 1870. 



56 THE THEORY AND PRACTICE OF TAXATION. 

The normal consumption of distilled spirits in the 
United States in 1894, as indicated by withdrawals from 
distilleries and warehouses, was about 8,000,000 gallons 
a month. The extent to which the increase in the direct 
tax on spirits by the act of August 28, 1894, from ninety 
cents to one dollar and ten cents per gallon, was antici- 
pated by speculators is strikingly illustrated by the fact 
that an average monthly revenue from the lesser tax of 
about $8,000,000 per month during the first six months 
of 1894 increased during the month of July and the first 
twenty-seven days of August to $19,064,000 and $21,- 
470,000 respectively, and declined in the succeeding month 
of September to $510,696. 

Any review of the comparatively recent tax experiences 
of the United States would be incomplete that failed to 
notice its taxation (concurrent with that on distilled 
spirits) of domestic fermented liquors (beer, etc.). The 
internal revenue tax on this commodity was until 1897 
practically uniform since its first authorization in 1863, 
namely, one dollar per barrel, holding theoretically thirty- 
one gallons. In 1898 the rate was increased to two dollars 
a barrel. The tax was originally assessed and collected on 
the returns of the brewers, and was largely evaded. After 
July, 1866, it was successfully enforced through the em- 
ployment of stamps, one of which, " denoting the amount 
of the tax/ 7 is required to be affixed upon the spigot hole 
or tap (of which there shall be but one) in such a way 
that the stamp shall be destroyed upon the withdrawal of 
the liquor from the barrel or other receptacle. The table on 
the opposite page exhibits in detail the experience which has 
characterized each fiscal year since the inception of this 
source of revenue in 1863 down to and including 1898. 

The points of interest made apparent in the foregoing 
tabular exhibit, and to which attention is especially asked, 
are as follows : 

(1) The regular and great increase in the quantity of 
fermented liquors annually made subject to internal reve- 
nue taxation— i. e., from 62,205,375 gallons in 1863 to 
1,071,183,827 gallons in 1893, and an increase in per 
capita consumption very far in excess of the rate of in- 
crease in population — i. e., from 1.86 gallons in 1863 to 
over sixteen gallons in 1893. 



CONSUMPTION OF FERMENTED LIQUORS. 



57 





Population. 


BEER. 


Years. 




Quantity 


Revenue col- 


Revenue 


Tax per 

barrel 

of 31 

gallons. 






Quantity taxed. 


per 


lected from 


per 








capita^ 


barrel tax. 


capita. 






Gallons. 


Gallons. 


Dollars. 


Dollars. 


Dollars. 


1863... 


33,365,000 


62,205,375 


1.86 


1,558,083 


.05 


j 1.00 
I .60 


1864... 


34,046,000 


97,382,811 


2.86 


2,223,719 


.07 


j .60 

I 1.00 


1865... 


34,748,000 


113,372,611 


3.26 


3,657,181 


.11 


1.00 


1866... 


35,469,000 


158,569,340 


4.47 


5,115,140 


.14 


1.00 


1867. . . 


36,211,000 


192,429,462 


5.31 


5,819,345 


.16 


1.00 


1868. . . 


36,973,000 


190,546,553 


5.15 


5.685,663 


.15 


1.00 


1869. . . 


37,756,000 


196,603,705 


5.21 


5,866,400 


.16 


1.00 


1870... 


38,558,371 


203.813,127 


5.29 


6,081,520 


.16 


1.00 


1871... 


39,555,000 


239,948,060 


6.06 


7,159,740 


.18 


1.00 


1872... 


40,596,000 


268,442,237 


6.61 


8,009,969 


.20 


1.00 


1873... 


41,677,000 


298,633,013 


7.16 


8,910,823 


.21 


1.00 


1874... 


42,796,000 


297,627,807 


6.95 


8,880,829 


.21 


1.00 


1875... 


43,951,000 


293,033,607 


6.66 


8,743,744 


.20 


1.00 


1876... 


45,137,000 


306,972,912 


6.80 


9,159,675 


.23 


1.00 


1877... 


46,353,000 


304,111,860 


6.56 


9,074,355 


.20 


1.00 


1878... 


47,598,000 


317,485,601 


6.67 


9,473,360 


.20 


1.00 


1879. . . 


48,866,000 


344,195,604 


7.04 


10.270,352 


.21 


1.00 


1880... 


50,155,783 


413,760,441 


8.25 


12,346,077 


.25 


1.00 


1881... 


51,316,000 


443,641,868 


8.65 


13,237,700 


.26 


1.00 


1882... 


52,495,000 


525,514,635 


10.01 


15,680,678 


.30 


1.00 


1883... 


53,693,000 


550,494,652 


10.25 


16,426,050 


.31 


1.00 


1884... 


54,911,000 


588,957,189 


10.73 


17,573,722 


.32 


1.00 


1885... 


56,148,000 


594,764,543 


10.59 


17,747,006 


.32 


1.00 


1886... 


57,404,000 


642,038,923 


11.18 


19,157,612 


.33 


1.00 


1887... 


58,680,000 


716,767,306 


12.21 


21,387,411 


.36 


1.00 


1888... 


59,974,000 


765,086,789 


12.77 


22,829,202 


.38 


1.00 


1889... 


61,289,000 


778,715,443 


12.71 


23,235,863 


.38 


1.00 


1890... 


62,622.250 


854,420,264 


13.64 


25,494,798 


.41 


1.00 


1891... 


63,975,000 


944,823,952 


14.77 


28,192,327 


.44 


1.00 


1892... 


65,520,000 


986,352,916 


15.05 


29,431,498 


.45 


1.00 


1893... 


66,826,000 


1,071,183,827 


16.03 


31,962,743 


.48 


1.00 


1894... 


68,275,000 


1,033,378.273 


15.13 


30,834,674 


.45 


1.00 


1895... 


69,753,000 


1,040,403,741 


14.91 


31,044,305 


.44 


1.00 


1896. . . 


71,263,000 


1,110,609,038 


15.66 


33,139,141 


.46 


1.00 


1897... 


72,807,000 


1,067,115,914 


14.65 


31,841,362 


.43 


1.00 


1898... 


74,389,000 


1,162,292,486 


15.62 


38,885,152 


.52 


j 1.00 
]2.00 



(2) The concurrent regular increase in revenue from 
this source— i.e., from $1,558,000 in 1863 to nearly 
$32,000,000 in 1893. 

(3) The variations in the product of fermented liquors 
which the Government has been able annually to subject 

5 



58 THE THEORY AND PRACTICE OF TAXATION. 

to taxation since 1863 have been inconsiderable and in 
remarkable contrast to those occurring in the case of dis- 
tilled spirits. Business depression from 1874 to 1879 
and for the year 1884 appears to have been influential in 
checking per capita consumption, though in a small de- 
gree, and to have exerted little or no influence in the sub- 
sequent years, that are subject to analysis, down to 1894, 
when financial and industrial depression was again opera- 
tive in the country, results indicating that similar larger 
and contemporaneous decrements in consumption and 
revenue in the case of distilled spirits were due to fraudu- 
lent practices, rather than to an impairment of ability to 
consume on the part of the masses. 

(4) The average annual increase in the receipt of in- 
ternal revenue from fermented liquors for the ten years 
from 1883 to 1892 was $1,306,057, and for the four years 
ending with the fiscal year 1893 about $1,617,000. That 
this latter ratio of annual increase under the present rate 
of tax of one dollar the barrel of thirty-one gallons is likely 
to indefinitely continue is almost demonstrated by the fact 
that the popularity of fermented or malt liquors as bever- 
age among the American people is unquestionably increas- 
ing; and also that large, seemingty, as is their present 
average per capita consumption — namely, fifteen gallons — 
the present per capita consumption of the people of sev- 
eral other nationalities is much greater ; that of the United 
Kingdom being estimated at thirty gallons; of England 
and Wales, thirty-six ; of Belgium, forty ; and of Germany, 
forty-five. An important fact pertinent to the prospective 
consumption of beer and its permanent value as a source 
of national revenue is, that the cost of the materials used 
in its manufacture has decreased in comparatively recent 
years, in the United States, Great Britain, and probably 
other countries characterized by its large consumption, 
to the extent of at least forty per cent; and the advan- 
tage from this change which has accrued to British brew- 
ers was stated by the British Chancellor of Exchequer, 
in May, 1895, to have been upward of £2,000,000 ($10,- 
000,000) per annum. Another point of interest in this 
connection which is especially worthy of attention is, that 
if moral influences have ever materially affected the gen- 
eral consumption of distilled spirits or fermented liquors 



DRAFT OF A CUSTOMS TARIFF. 59 

in the United States, the tabulated tax experiences of its 
Government, which constitute the only reliable basis for 
forming an opinion, do not afford any indication of it. 

Having reformed and radically reduced the war taxes 
in the Department of Internal Revenue, it was next in 
order for Congress to consider the readjustment of the 
customs system of taxation, which had also been evolved, 
as it were, out of the war's fiscal exigencies ; and it accord- 
ingly in 1867 instructed the Secretary of the Treasury 
to present at its next session the draft of a tariff embody- 
ing reductions of war rates. The responsibility of pre- 
paring such a draft having been next intrusted by the 
Secretary to the Special Commissioner of the Revenue, 
the latter, with a view of qualifying himself for the trust, 
visited Europe under a Government commission, and in- 
vestigated under almost unprecedented advantages nearly 
every form of industry then competitive with the United 
States in Great Britain and on the Continent. The results 
of this visit and investigation effected an enlightenment on 
his part in respect to two salient and fundamental points : 

First, that no country, with the exception of the United 
States, which had adopted in a greater or less degree the 
policy of protection through duties or restrictions on im- 
ports, had ever regarded the taxation of the imports of 
" raw," * or crude, or partly manufactured materials, to 
be subsequently used for larger manufacturing, as an ele- 
ment of protection in its largest sense to its domestic in- 
dustry, but rather as antagonistic to, and destructive of, 
such industry ; and that, while such taxation in the United 
States had undoubtedly built up some industries and en- 
riched their owners, it had been a great restraint on the 
development of a much larger and higher class of indus- 

* The definition, or rather determination, of what constituted 
a " crude " or " raw " material for manufacturing purposes has 
always been a matter of embarrassment to legislators and eco- 
nomic writers, inasmuch as a confessedly manufactured and often 
elaborate product may be relatively a raw or crude material for 
successively higher grades or processes of manufacture. A propo- 
sition recently proposed by Mr. Lindley Vinton, of New York, to 
restrict the application of the above terms in law, commerce, and 
economics, to the state or condition in which any product first 
enters into trade or commerce, would seem to be so free from any 
ambiguity of meaning as to be worthy of consideration. 



60 THE THEORY AND PRACTICE OF TAXATION. 

tries, employing a greater number of workmen, and pay- 
ing much higher average wages. Second, that the conn- 
tries of Europe in which the average rates of wages were 
lowest were the most clamorous for protective duties on 
imports; and that high wages in any country, conjoined 
with the extensive and skilful use of machinery, instead 
of being evidence of industrial weakness, were evidence of 
great industrial strength; inasmuch as no employer can 
continuously pay high wages unless his product is large, 
his labour most effective, and his cost of product, measured 
on the terms of labour, comparatively low. 

The announcement of these views, and especially their 
publication in a report in 1869, created much antagonism 
among the advocates of the policy of extreme protection in 
the country; and Horace Greeley and others publicly 
charged that the commissioner had been induced to change 
his views through the corrupting agency of British gold. 
Notwithstanding this, a draft for a complete revision of 
the tariff of the United States, prepared under his almost 
sole supervision, and accompanied with a report on the 
existing revenue resources and industrial and financial 
condition of the country, was submitted to the Forty-first 
Congress by Secretary McCulloch, with his indorsement, 
in December, 1869. This draft, subsequently embodied in 
the form of a bill, with slight modifications by the Finance 
Committee of the Senate, came very near enactment into 
law, the Senate passing it by a vote of twenty-seven to 
ten. In the House of Eepresentatives it failed in the 
closing hours of the second session by a very few votes, 
and not by a direct vote, but on a motion to suspend the 
rules, take the bill from the Committee of the Whole, and 
put it upon its passage. This motion, which required a 
two-thirds vote, was defeated — one hundred and six in 
the affirmative to sixty-four in the negative. It was thus 
made evident that, could the bill as it came from the 
Senate have been brought directly before the House, it 
would have passed by a large majority, and probably have 
quieted for years all difficult and disturbing legislation 
on this subject. 

When the office of Special Commissioner expired by 
limitation in 1870, the appointment as chairman of a State 
commission, specially created for investigating the sub- 



NEW YORK TAX COMMISSION. 61 

ject and laws relating to local taxation, was tendered to 
its late incumbent by the Governor (Hon. John T. Hoff- 
man) of the State of New York, and accepted. This new 
position afforded an almost unprecedented opportunity 
and facilities for becoming acquainted with a practically 
new department of taxation; the taxes levied by the Fed- 
eral Government being mainly of an indirect character, 
and subject to constitutional limitations; while those of 
the States are mainly direct, and practically subject to no 
limitations as to object, except as respects imports, ex- 
ports, and the property and instrumentalities of the United 
States. The results of this new field of exploration were 
laid before the Legislature of the State of New York in 
the form of two reports (in 1871 and 1872), with an ac- 
companying draft of a code of laws. The facts developed 
on this line of investigation, and which will be restated 
with much additional evidence in the following chapters, 
are generally regarded as antagonistic to the theory of 
taxation as accepted and taught by most economists, and 
incorporated into statutes by lawmakers. The Legislature 
to which these reports were submitted paid no further 
attention to them than to order their printing. They were, 
however, contrary to almost all precedent, reprinted in 
the United States and in Europe. 

Note. — The writer would take this occasion to acknowledge 
his great indebtedness to the late Isaac Sherman, of New York, 
whose innate modesty and desire to avoid publicity alone pre- 
vented a general recognition by his countrymen of his great in- 
tellectual ability; and that this characterization is not unwar- 
ranted is proved by the fact that it was fully admitted by such 
men of his time as Samuel J. Tilden, Charles O'Conor, and Eev. 
Dr. Bellows; and also by the circumstance that he was the one 
man of all others that President Lincoln selected as his adviser 
in the most critical periods of the war, and to whom he repeatedly 
tendered the highest civil offices in his gift. Mr. Sherman took 
a deep interest in the work of the New York State Tax Commis- 
sion; participated in its investigations; contributed to its coun- 
cils a very thorough knowledge of the views of English, French, 
and German writers on taxation, and of the cognate opinions and 
decisions of American and European courts and jurists; and is 
entitled to equal credit for whatever of merit may pertain to its 
conclusions. If these conclusions, arrived at and expressed in the 
following chapters, do not meet the full concurrence of economists, 
the writer has the satisfaction of knowing that they received, in 
the main, the full indorsement of one so pre-eminently qualified 
to pass judgment upon them. 



CHAPTER II. 

THE PLACE OF TAXATION IN LITERATURE AND HISTORY. 

One of the great historians of the present century has 
expressed disappointment at what he terms the "empti- 
ness " of historical study, and accordingly inclines to the 
opinion that guidance in respect to human affairs in the 
future is to be sought for in present rather than in past 
experiences. Nevertheless, it would seem to stand to 
reason, that when any department of knowledge, especially 
one characterized by controverted questions, is to be com- 
prehensively examined, with the prime object of determin- 
ing the best methods for human action, it would not be 
expedient to attempt to discover or discuss any abstract 
principles which ought to govern such action, until at least 
a summary of facts derived from experience and essen- 
tial to correct conclusions had been presented and made 
familiar, and, acting on this assumption, it is proposed 
next to ask attention — first, to the place of taxation, con- 
sidered as a department of knowledge, in general litera- 
ture; and, second, to some points of historical interest, 
growing out of the appropriation by states or rulers of the 
property of their citizens or subjects for real or assumed 
public purposes. It is believed that in this way the dis- 
cussion at a later period of the principles growing out of 
the exercise by governments of this great prerogative may 
be facilitated and rendered more attractive.* 

Position of Taxation in General Literature. — 
All general treatises on political economy devote more or 

* " No man can learn what he has not preparation for learn- 
ing, however near to his eyes is the object. Our eyes are holden 
that we can not see things that stare us in the face, until the hour 
arrives when the mind is ripened ; then we behold them."' — 
Emerson, Spiritual Laics, First Series of Essays, p. 139. 
62 



LITERATURE OP TAXATION. 63 

less space to the consideration of taxation; and there have 
been many publications in the nature of official reports, 
compendiums of tax laws, and. their interpretation by legal 
tribunals, and special essays on particular forms of taxes. 
But, at the same time, notwithstanding the vastness and 
importance of the subject, its symbolism and exemplifica- 
tion of sovereignty, its influence for weal or woe on every 
citizen and on every industry, according as the power in- 
volved is properly or improperly exercised, and the part it 
has played in history, its position in economic literature 
is so comparatively insignificant that there is not a single 
publication at present in the English language which is 
entitled to be considered as a full and complete treatise; 
certainly none such as are readily at the command of 
every person desirous of becoming reasonably proficient in 
any of the other leading branches of learning. Professor 
Cossa, of the University of Pavia, Italy, in a bibliography 
of taxation incorporated in a brief treatise on the Science 
of Finance, published in 1882, and brought up to the times 
by an American translation in 1888,* does not mention 
even one title of this character. And although there are 
works on taxation more or less general in their scope in 
other languages — especially in French and German — and 
to some of which high merit is accorded, there are none 
which any considerable number of economists are willing 
to accept as standard or authoritative in all departments; 
the chapter on taxation in Adam Smith's Wealth of Na- 
tions constituting the only treatise which can possibly be 
regarded as an exception, f For such a result it is not easy 

_ * Taxation, its Principles and Methods. Translated from the 
Scienza delle Finanze of Dr. Luigi Cossa, Professor of the Uni- 
versity of Pavia, Italy; with an Introduction and Notes by Horace 
White. New York: G. P. Putnam's Sons, 1888. 

f " It is well known that during the period from Adam Smith 
to the close of John Stuart Mill's activity — that is, for fully one 
hundred years — English political economy treated the science of 
finance " (embracing the raising of revenue) " as nothing better 
than a scanty appendage. It is a significant fact that no work 
worth mentioning on the science of finance has yet (1889) been 
published in the English language, though some considerable con- 
tributions have been made to financial history." — Cohn's Science 
of Finance. 

Since this was written Professor Bastable has published his 
Public Finance, and Mr. H. C. Adams his The Science of Finance. 



64 THE THEORY AND PRACTICE OF TAXATION. 

to account. Possibly, owing to the want of accord among 
writers on economic and financial subjects, an opinion 
has come to prevail that no consistent treatment of the 
subject, as a whole, is possible; that the financial and in- 
dustrial condition of nations or states differs so widely 
that no uniform rules of practice for the raising of reve- 
nue can be established ; and, finally, if such a code of rules 
were universally accepted, the varying necessities of 
nations would compel its violation, or complete abandon- 
ment, in periods of great emergency. 

In the case of the United States the condition of the 
country previous to the civil war, as already pointed out, 
was very curiously such as to create great indifference to 
this, in common with almost every other economic or finan- 
cial topic. The nation and the several States composing 
it were at the period referred to comparatively free from 
debt. All taxation was light. Direct taxation by the 
Federal Government had become a matter of history, no 
taxes of this character having been imposed for nearly 
half a century. Pauperism was mainly restricted to per- 
sons of foreign nativity, while to all who were willing to 
practise industry and economy, the ability to command 
a good subsistence, if not an ultimate competence, seemed 
comparatively easy. Why should a nation under such 
circumstances trouble itself about difficult and intricate 
problems in finance or political economy? And taking 
counsel of the proverb, " Sufficient unto the day is the 
evil thereof," the nation did not. But, with the advent 
of war in 1861, the creation of an enormous national debt, 
and a gigantic, unsystematic, and complex system of taxa- 
tion, a resort to irredeemable paper money and the sus- 
pension of specie payments, the condition of things as 
above stated rapidly changed ; and the questions and prob- 
lems which in popular estimation were before insignificant 
have rapidly become so important as to constitute not 
only the theme of never-ending popular discussion, but 
also the issues which mainly divide the national political 
parties of the country. And as illustrating in some degree 
the nature and strength of what may be termed the motor 
or impelling influences which have forced these changes 
in public opinion, what can be more pertinent than the 
fact that the State of New York alone now annually raises 



ECONOMIC DISCUSSION IN UNITED STATES. 65 

by taxation to meet the expenditures of State and local 
governments a sum ($91,232,012 in 1890) more than one 
half in excess of the net ordinary expenditures of the Fed- 
eral Government in 1860 ($60,086,754).* In this latter 
year the cost to the people of the United States for the 
maintenance of their national, State, and local govern- 
ments was probably less than three dollars per capita. 
For the year 1890, an approximately correct estimate for 
like expenditures was $13.65 per capita. 

These questions and problems have not, however, come 
up simultaneously for consideration, but have been gradu- 
ally evolved, as it were, from the changing condition of 
affairs, and somewhat in the following order: First, the 
national debt and its transition from a miscellaneous to a 
consolidated character; second, the readjustment of the 
war system of internal taxation; third, the question of 
currency, specie redemption, and legal tender — on which 
topics alone more than five hundred separate publications, 
books and pamphlets, exclusive of congressional speeches 
and newspaper articles, have been issued from the Ameri- 
can press ; fourth, the " Free Trade " and " Protection " 
question; fifth, the monetary metallic standard question; 
sixth, the relations of the State to common carriers, and 
the methods of internal intercommunication; seventh, the 
subject of local or State as contradistinguished from na- 
tional or Federal taxation ; on which latter topic, although 
it relates to methods by which the people of the United 
States at present annually contribute to local or State 
governments a sum nearly equal to the present total an- 
nual revenue of Great Britain from all imperial taxes, 
there had not been, up to 1870, a single publication in the 
United States apart from official reports that pretended 
intelligently to discuss it. Since this date, however, a 
much greater interest has been manifested on this sub- 
ject. Several publications of great merit, exhibiting the 
situation in its legal aspects, and the theories, controver- 
sies, and experiences of the past, have appeared; f and 

* The budget of the city of New York is at present [1899] up- 
ward of $97,000,000 a year. 

t Of such publications the following are specially worthy of 
notice: A Treatise on the Law of Taxation, including the Law 
of Local Assessment, by Thomas M. Cooley, one of the justices of 



6Q THE THEORY AND PRACTICE OF TAXATION. 

this interest has been especially intensified and popular- 
ized by the scheme of the so-called " single tax," which, 
if not originated by Mr. Henry George, has been so ably 
advocated by him as to have attracted, previous to the 
development of the silver problem, more of popular atten- 
tion on both sides of the Atlantic than any other economic 
topic brought forward during the present century. 

Some better acquaintance with the literature of taxa- 
tion than has hitherto been acquired by most educated 
men would seem to be essential to a full understanding 
of many of the great events in the world's history, inas- 
much as nearly all great political revolutions have been 
primarily occasioned by the exercise of arbitrary power 
in compelling contributions of property from the masses 
by those in authority. Thus, going back to ancient his- 
tory, the disruption of the Jewish monarchy and the seces- 
sion of the ten tribes were due to the refusal of the suc- 
cessor of Solomon to accede to the demands of their rep- 
resentatives that he should abate the (tax) exactions of 
the preceding reign; and to his threat in response that 
he would make his yoke even heavier in this particular 
than his father's. And the first significant act recorded 
of the revolt that followed was the stoning to death of 
the man Adoram, who " was over the tribute," or the chief 
of the tax collectors.* 

the Supreme Court of Michigan, 1876; A Treatise on the Law of 
Taxation, as exercised by the Government of the United States, 
by W. M. Burroughs, 1877; The Law of Taxation, by Francis 
Hillard, 1875 (three publications in which questions of political 
economy, as not necessarily involved in discussion of legal points, 
have received little consideration) ; The Shifting and Incidence 
of Taxation, 1892 (second edition, 1899), Progressive Taxation in 
Theory and Practice, 1894, Essays on Taxation, 1895, by Prof. 
Edwin R. A. Seligman, of Columbia College, New York, three pub- 
lications characterized by great historical research, and a repertory 
of information not otherwise readily accessible. Cohn's Science 
of Finance, a recent work of sufficient merit to warrant its transla- 
tion from the German under the auspices of the University of 
Chicago, is nevertheless of such a character that it will never be 
generally read, or have the slightest influence on the mass of the 
people of a country like the United States, who select the legis- 
lators who determine what shall be the policy of their Government 
in respect not only of taxation but of all other fiscal or economic 
subjects. 

* Although Rehoboam was urged to make concessions to the 



TAXATION IN HISTORY. 67 

After the Persian war, the states of Greece, united 
under what was termed the confederation of Delos, agreed 
to make contributions — i. e., pay taxes — to Athens, to be 
used by her for the common defence; and these contri- 
butions, assessed in the first instance by Aristides, whose 
reputation for justice commanded the confidence of all, 
occasioned no complaint. But finally Athens, having 
assumed the direction of the confederacy, not only in- 
creased the contributions beyond the assessments of Aris- 
tides, but also assumed the right to use them arbitrarily, 
notably for fortifying and beautifying the city. The re- 
sult was a revolt, followed by the Peloponnesian war, and 
from that date and occurrence the decline of Athens, and 
indeed of all the states of Greece, is traceable. 

Oppressive taxation prompted the so-called massacre of 
the " Sicilian Vespers " in 1282, resulting in the slaughter 
or expulsion of all the French from the island of Sicily. 

The assumption and exercise of authority on the part 
of Pope Leo X in 1517, to enforce contributions for the 
rebuilding of the cathedral of St. Peter's at Eome was, as 
is well known, the primary cause of the disruption of the 
Eoman Catholic Church, the Protestant secession led by 
Luther, and the almost innumerable wars and social dis- 
turbances that followed in consequence. 

The history of the struggle of the people of England 
against arbitrary taxation is the history of the English 
Constitution. Thus, the attempt to arbitrarily collect an 
unjust poll tax was the primary cause of the rebellion of 
Wat Tyler in England in 1378, in the reign of Eichard 
II ; as was the " misuse of taxes " the occasion of the 
rising of the commons of England in the next century 
(1450) against the government of Henry VI, and under 
the leadership of Jack Cade.* 

people, whose greatest grievance was the corvee and burdens im- 
posed by Solomon's court and great building operations at Jeru- 
salem, he is reported to have said : " My little finger shall be 
thicker than my father's loins. And now whereas my father did 
lade you with a heavy yoke, I will add to your yoke: my father 
hath chastised you with whips, but I will chastise you with 
scorpions." The name Adoram, says Renan, became mythical to 
designate the overseer of forced labour. 

* Recent historical investigations favour the idea that the 
leader of this rebellion was not an illiterate rascal and buffoon — 



68 THE THEORY AND PRACTICE OF TAXATION. 

Shakespeare, who apparently analyzed and compre- 
hended the subtle philosophy of all human motives and 
tendencies, seems also in the play of Henry VIII to ascribe 
the fall of his great minister, Wolsey, to abuse of the 
power of taxation ; and whether in this he was historically 
correct or not, his utterances respecting the effect of such 
abuse are as pertinent to-day as ever, and in some respects 
remarkably applicable to the depression that in recent 
years has come to one great department of the domestic 
industries of the United States through injudicious taxa- 
tion of the crude material — wool — that constitutes its 
foundation : 

" The subject's grief 
Comes through commissions, which compel from each 
The sixth part of his substance, to be levied 
Without delay; . . . this makes bold mouths: 
Tongues spit their duties out; and it's come to pass, 
This tractable obedience is a slave 
To each incensed will." 

" For, upon these taxations, 
The clothiers all, not able to maintain 
The many to them 'longing, have put off 
The spinsters, carders, fullers, weavers, who, 
Unfit for other life, compelled by hunger, 
And lack of other means, in desperate manner 
Daring the event to the teeth, are all in an uproar, 
And Danger serves among them." 

The great revolution in England (1642-1659), by which 
the constitutional rights of her people were finally estab- 
lished, wherein Charles I lost both his crown and his head, 
was caused by a question of taxation. And subsequently 
the attempt of Great Britain to tax her American colonies 
without their consent was also the primary cause of the 
American Eevolution ; * while later the demonstrated in- 



one of " the filth and scum of Kent," as portrayed by Shakespeare 
in Henry VI — but rather a gentleman of gentle and possibly of 
noble birth. 

* Recent historical investigations (by Professor Tyler) have 
shown that the demand " no taxation without representation," 
which has been popularly regarded as one of the prime causes 
that contributed to the revolt of the British American colonies 
in 1775 and their subsequent independence, " did not mean that 
the colonies could not be lawfully taxed by Parliament when they 
had no representatives in Parliament. It was a demand applicable 



PREJUDICE AGAINST WEALTH. 69 

ability of maintaining a harmonious and efficient govern- 
ment under the Articles of Confederation, which per- 
mitted the several States that were parties thereto to in- 
terfere with their mutual trade and commerce by multiple 
and conflicting systems of taxation, was one of the prin- 
cipal factors that led to the formation and adoption of the 
Federal Constitution. 

It is also now generally admitted that to the cruel and 
extraordinary abuse of the power of taxation, more than 
to any other one agency, is attributable not only the French 
Revolution, but the extraordinary ferocity with which it 
was conducted. 

No text in the New Testament has been so little under- 
stood for want of any recognition of its connection with 
the subject of taxation, as that one which declares that 
" it is easier for a camel to go through the eye of a needle 
than for a rich man to enter into the kingdom of God." 
By many theologians and secular advocates of social re- 
form — the Russian Tolstoi being a recent notable example 
of the latter — it has been regarded as a disapproval of the 
attainment or accumulation of wealth, and has doubtless 
served as the basis for innumerable sermons on the " sin 
of riches " ; when a little reflection and acquaintance with 
social economy would have led to the conclusion, as Buckle 
has clearly expressed it, " that of all the results which 

to the three orders of the English body politic — kings, lords, and 
commons — and meant that the commons could not be taxed when 
they were not represented. But the commons represented the 
cities of Leeds, Halifax, Manchester, Birmingham, and Liverpool 
in Parliament, although none of them had any vote or personal 
representation in it at the time of the American revolt or for a 
long time afterward. Indeed, only one tenth of the people of the 
United Kingdom had then any vote. The commons represented 
Massachusetts in the same way that they represented Manchester. 
That this was an unsatisfactory kind of representation will be 
admitted without argument, but it was not in contravention of 
the maxim quoted, which has come down to us as a legal justi- 
fication for the war. It would have been strange indeed if the 
English Constitution had contained within itself a justification 
for breaking up the British Empire." The separation of the colo- 
nies from the mother country was therefore not a legal step, but 
an act of revolution, and suggests a remark attributed to Mr. 
Lincoln at the outbreak of our civil war, that " it was a consti- 
tutional procedure for overthrowing the Constitution." See Liter- 
ary History of the American Revolution, by Moses Coit Tyler. 



70 THE THEORY AND PRACTICE OF TAXATION. 

are produced among a people by their climate, food, and 
soil, the accumulation of wealth is the most important. 
For, although the progress of knowledge eventually accel- 
erates the increase of wealth, it is nevertheless certain that 
in the first formation of society, wealth must accumulate 
before knowledge can begin, because without wealth there 
can be no taste or leisure for that acquisition of knowledge 
on which the progress of civilization depends." And sure- 
ly a disapproval of this almost self-evident truth could not 
have been the intent of an inspired teacher. To under- 
stand the true meaning of this text it is necessary to go 
back and consider the time and circumstances under which 
the declaration it embodies was made. Judea at this period 
was a subjugated Eoman province, and what the wisest 
and best men of Rome thought of the people of such 
provinces and of the right of Rome to grind down the 
nations that it had subjugated, is clearly shown by the fol- 
lowing extract from the oration of Cicero against Verres, 
who was prosecuted for extortion when governor of the 
province of Sicily : " If," he said, " we have esteemed the 
revenues of the provinces as the nerves of the republic, 
we shall not hesitate to say that the order which raises 
them is the mainstay of the other orders. The provinces 
and countries subject to tribute are the lands of the Roman 
people. If Verres is guilty, it is not because of his ra- 
pacious exactions, but because he diverted them to his own 
use rather than to that of the republic." And as for the 
sufferings of the tributary people, he alludes to them for 
the necessities of his cause, but he regards them of so 
little importance that in his oration for Fonteius he ex- 
claims : " Who are his accusers ? Barbarians ! Men who 
wear breeches and smocks ! Can the most reputable of the 
Gauls be placed on a par with the least and most wretched 
of Roman citizens ? " The Romans, in fact, regarded their 
provinces as valuable only to the extent that they could 
make them available for extorting tribute (taxes), and the 
most effective instrumentalities they could employ for this 
purpose were unpatriotic or renegade citizens of the prov- 
inces who understood the habits, pursuits, and amount 
and distribution of the property of their fellow-country- 
men. These in the case of Judea were Romanized or 
apostate Jews, who, in accordance with the Roman custom, 



LOW ESTIMATE OF PUBLICANS. 71 

were invested with a power, which they undoubtedly exer- 
cised, to administer torture in case it was found necessary 
to enforce payments from unwilling or impoverished sub- 
jects. 

Again, as there was little industry at the time save 
agriculture, and markets were limited, there was little 
opportunity for a Jew to become rich, except by favour 
of the Eomans and plunder of his people; and with these 
latter the publican or tax-gatherer and the rich man, who 
must have been often one and the same, became so abhor- 
rent, that they naturally classified and placed them upon 
the same plane with notorious sinners and the most de- 
spised and degraded members of society — the harlots * — 
for whom an entrance into the kingdom of heaven was 
regarded as an impossibility. 

And in this connection it is pertinent to recall that 
Jesus visited the house of " a man named Zaccheus, which 
was the chief among the publicans, and he was rich." . . . 
"And when they" (the people) "saw it they all mur- 
mured, saying that he was gone to be guest with a man 
that is a sinner. And Zaccheus stood and said unto the 
Lord: Behold, Lord, the half of my goods I give to the 
poor ; and if I have taken anything from any man by false 
accusation, I restore him fourfold." And evidently in 
consequence of this declaration, " Jesus said unto him, 
This day is salvation come to this house, forasmuch as he 
also is a son of Abraham" (and not a foreigner). " For 
the Son of man is come to seek and to save that which 
was lost " (i. e., the publicans). 

In ancient Greece also there was a familiar proverb 
that used the term " publican " as synonymous with that 
of " robber " ; and Tacitus, the Eoman historian, in his 
description of the German people, regards them as fortu- 
nate in having no publicans to impoverish (atterere) them. 

On the other hand, in the case of the Eomans. who 
had little sensitiveness as to the manner in which public 
revenue or private wealth was attained, the publicans who 
collected the customs were held in high honour, and were 

* " Verily, I say unto you, that the publicans and the harlots 
go into the kingdom of God before you." — $. Matthew, xxi, 31. 

" For John came unto you and ye believed him not ; but the 
publicans and the harlots believed him." — S. Matthew, xxi, 32. 



72 THE THEORY AND PRACTICE OF TAXATION. 

characterized as the flower of the nobility (" flos equitum 
Romanorum "). 

Another point of interest in connection with this im- 
mediate subject, and one which has been generally over- 
looked, is that the answer which Jesus gave to the Jews, 
who put to him the question, " Is it lawful to give tribute 
to Caesar ? " — namely, " Bender unto Caesar the things that 
are Caesar's " — expresses a fundamental principle in po- 
litical economy, in that it enjoins payment on the part of 
citizens or subjects of such tribute (taxes) as the govern- 
ment (typified by Caesar) under which they live may law- 
fully be entitled to demand for its support; and at the 
same time withholds sanction from, and so by implication 
denies, the right of a government to take that to which 
it is not entitled (or which is not Caesar's), which it does 
when it exacts tribute or taxes for any other purpose than 
its legitimate support, or, what is the same thing, for the 
benefit of individual or private interests. In other words, 
the answer recognises a broad line of distinction between 
the rights of Caesar, or the government, and other rights 
in respect to property; and indicates that Caesar, or a gov- 
ernment, can find no justification, in virtue of power to 
compel the payment of tribute or taxes, to appropriate 
property (of the people) under circumstances in which 
similar action on the part of a private citizen would be 
considered robbery. 

The casual observer would hardly imagine that there 
was any relation between anthropology (the science of 
man) and taxation; and yet writers on the laws of nations 
from an early period, and economists of a later day,* have 
called attention to the circumstance that different races 
seem to possess different moral aptitudes for different 
forms of taxation. Thus it is claimed that in countries 
inhabited by the pure Germanic race, or its leading 
branches — in Germany, Scandinavia, Great Britain, and 
the United States — the desire and ability for self-govern- 
ment, and the disposition to place authority near to the 
individual or in his town or locality, favour voluntary 
taxation and a great endurance of burden in view of the 

* Macchiavelli and other Italian publicists in the seventeenth 
century, and M. de Parieu, a French economist, in 1855. 



TAXATION IN LITERATURE. 73 

attainment of a right result; whereas among the Latin 
races the tendency is to concentrate all authority, and 
generally in a military form, in the state, and require pas- 
sive submission to the exercise of it on the part of the 
people. Hence, general taxes on property and income, 
which require for their successful application a certain 
degree of loyalty, of patience, and even of voluntary co- 
operation on the part of taxpayers, and which find favour 
among the former races, hardly exist among the latter. It 
is interesting also to note, in connection with this subject, 
that the restitution to the Government of what is termed 
" conscience money," which is of constant occurrence in 
Germany, Great Britain, and the United States, is said to 
be very inconsiderable or wholly lacking in the states of 
the Latin races. 

The comparatively insignificant position which the 
subject of taxation holds in economic literature has already 
been pointed out. Its relation to general literature is 
similar, and perhaps even more remarkable. Since sin 
came into the world, there has probably been no one purely 
human agency more prolific of crime and human suffer- 
ing and of temptation to do wrong than the multitude of 
arbitrary, impolitic, and absurd laws which have been en- 
acted to unjustly exact from the people contributions of 
their labour and property under the name of taxation, 
and yet the utilization of these experiences by novelists 
and dramatic authors has been almost entirely restricted 
to the comparatively petty transactions of smugglers and 
the illicit producers of distilled spirits. Even the ter- 
rible tax incidents which preceded and in fact occasioned 
the great French Eevolution, have not entered largely as 
an element into more than one or two works of fiction 
of acknowledged merit in the English language.* As a 
field of morals also, this subject has been almost entirely 
ignored, and rarely entered upon by theologians; and yet 
under the tax laws of the United States, to say nothing 
of other countries, the practice of perjury is encouraged 

* The only work of fiction of this character known to the writer 
is Gabrielle Andre, by S. Baring-Gould (D. Appleton & Co., New 
York, 1871), in which the conditions of taxation existing in France 
prior to the Revolution of 1788-89 are instructively used as the 
basis of a historical story. 

6 



74 THE THEORY AND PRACTICE OF TAXATION. 

and tolerated to a degree that is utterly inconsistent with 
the existence of any high standard of public morality, or 
any rational religions belief.* f And so also in the depart- 
ment of history. How few of those who consider them-' 7 
selves well read and well informed, recognise that the 
terrible decadence of Spain up to 1808 is attributable 
more to the influence of a tax. on sales (the Alcavala) than 
to any other one cause; and that, on the other hand, the 
great wealth and prosperity of Holland in the sixteenth, 
seventeenth, and eighteenth centuries, and the control of 
a commerce that made its ships the chief carriers and their 
ports the chief depots of the products of the world, were 
due mainly to a system of taxation that imposed the mini- 
mum of restriction on exchanges, domestic or foreign, 
and entailed the least friction upon its own people ;. while 
in all other and competitive countries the direct reverse 
of such a fiscal policy found favour and existed. 

The Place of Taxation in History. — A clear and 
exhaustive statement of the world's experience in respect 
to what is called taxation would be almost equivalent to 
a universal history ; and in default of this, a review of the 
most prominent features of such experience is the only 
alternative, and is capable of being made in the highest 
degree interesting and instructive. 

While the farthest reach of history touches no period 
when government or the state has not appropriated for its 
maintenance or pleasure the property or services of its sub- 
jects or citizens, the present ideas respecting taxation are 
so essentially modern that little or no recognition of them 

* On this topic a leading American clergyman writes as fol- 
lows : " It is probably a good thing that clergymen have not 
preached numerous sermons on taxation, even on its moral and 
religious aspects. That they have hitherto been ignorant on the 
subject is not so much their fault as their misfortune, and being 
ignorant on the details of this matter they have not taken it as 
the theme of set discourses. But, judging by my OAvn experience, 
they have preached on the application of moral principles to every 
department of life, and on the obligation of a man to be honest 
in his dealings with government no less than with individuals. 
That taxation has moral relations and qualities they have per- 
ceived and stated, and that probably was as far as their qualifica- 
tions authorized them to proceed. Whether the present encyclo- 
pedic education will give us the more serviceable clergymen re- 
mains to be seen." 



THEORY OF LAND TENURES. 75 

can be found in either ancient or mediaeval history. In 
fact, no taxes, in the present ordinary sense of the term, 
were needed in ancient times to carry on government or 
public institutions. The monarch, king, chief, lord, or 
other sovereign of any particular district or country was 
generally the owner of all the landed property within his 
empire or domain; and the people who cultivated it were 
his villeins, serfs, or tenants. " The theory of English 
[and also of Chinese, it may be added] land tenures to- 
day is, that the original title is in the king, and that every- 
body who has an interest in land is a tenant. There is no 
such thing known in England, though it may be in some 
other countries, as an allodial title; that is, one which is 
absolute as to the ownership of the soil." All land in Eng- 
land is held mediately or immediately of the king, and 
there is no allodial tenure.* 

A sovereign who owned all the land of a country, and 
could at his will take any portion of the labour products 
of the people who cultivated or occupied it, obviously was 
exempt from the necessity of resorting to any other form 
of levy upon persons or property for the support of the 
state or for his pleasure; and this mode of appropriating 
property by the governing power has prevailed in almost 
every country of the Old World of which we have any 
fiscal record, at some period of its history. At the same 
time all history teaches that the actual administration of 
such governments has been very generally, and perhaps as 
a rule unnecessarily, oppressive by reason of the manner 
of collecting or exacting the tribute or contributions from 
the people, or by the spoliations of the officials to whom 
the business was intrusted. Throughout the Eastern world 
the general practice under its native princes has been, and 
even still is, for the tribute or tax collectors to pay them- 
selves by peculations, and to extort from the cultivator 



* Miller's Lectures on the Constitution of the United States, 
pp. 231, 232: "Out of this fact come many of the difficulties 
American students find in regard to the doctrines pertaining to 
estates and tenancies. Our laws have been freed from a large part 
of these intricacies and traditional requirements, which were the 
outgrowth of centuries of development among our English ances- 
tors regarding the holding of land, but their influence still embar- 
rasses our judicial system." 



76 THE THEORY AND PRACTICE OF TAXATION. 

the utmost farthing that could be taken without compel- 
ling him to abandon his fields. Thus under the Sikh 
dynasty of India, which was founded by a petty chieftain 
on the ruins of the Mogul Empire at the close of the last 
century and continued until 1846, the custom was to take 
from the peasant the equivalent of six shillings out of 
every twelve shillings' value of his produce in the name 
of rent; but under the present British rule the govern- 
ment takes from the descendants of these same peasants 
only one or two shillings in the form of taxes. It is not 
necessary, however, to go to Eastern experiences for illus- 
trations of how the burden of taxation can be made ter- 
ribly oppressive by the method of taking, inasmuch as in 
1598 (according to Sully *), out of one hundred and fifty 
millions extorted from the taxpayers of France in that 
year, only thirty millions found their way into the public 
treasury. It is stated as a not infrequent occurrence that 
prior to the great Eevolution of 1789, a duty was levied 
twenty-seven times on a barrel of wine in the course of 
its transportation from the place where it was grown to 
that where it was sold; so that it was said to be cheaper 
to send wine from China to France than from one of the 
departments of France to Paris. 

It is also to be noted that in ancient times war, both in 
Eastern countries and in Europe, was almost the normal 
state of mankind, and victorious nations supported and 
enriched themselves from the plunder and tribute of the 
vanquished. The land especially of subjected people be- 
came the property of the conquerors, and payments in the 
nature of rents rather than taxes were exacted from its 
occupants and cultivators. 

Taxation in China. — A curious perpetuation in 
many respects of these ancient methods is yet to be found 
in the present system of raising funds for defraying the 
expenses of the Government in China, and concerning 
which little has been definitely known until within a very 
recent period. With the exception of certain limited 
grants held by Manchu princes in consideration of remote 
military services, all the land of the empire is regarded 

* Memoirs of Sully ; quoted by McCulloch in Treatise on Taxa- 
tion, p. 30. 



TAXATION IN CHINA. 77 

as the property of the emperor, and all original titles to 
land are held directly from him subject to three condi- 
tions : * First, the payment of a land tax ; second, the pay- 
ment of fees when the crown title-holder or his successors 
sell mortgages, or leases; third, the supplying of certain 
labour service when demanded by the authorities. The 
land tax, which is exacted from all arable land, varies in 
amount according to the productiveness of the land, and 
does not ordinarily exceed one twentieth of the gross 
product. There is no tax on waste and uncultivated land, 
and rights in common exist in respect to waste land ad- 
joining villages. The fees incident to the alienation of 
land are nominally about three per cent of the purchase 
money, but usually, by extortion, range from five to six 
per cent. The supplying of labour, when demanded by the 
authorities, is not well defined, and is apparently limited 
to furnishing the Government with transportation and 
labour on the public works, especially the repairing of 
dikes and canals. If these conditions are complied with, 
the state rarely interferes with the possession, alienation, 
or rental of land by its subjects. When land is rented the 
Government tax is paid by the landlord, and not by the 
tenant. The district magistrate is tax assessor, tax col- 
lector, judge, and administrator. 

In China, where no part of the national income, except 
what is obtained from the foreign maritime customs, is 
collected directly by experts of the Imperial Government, 
the opportunities for peculation and oppression are many. 
All the collectors of the revenue, with the exception noted, 
are agents of the provincial governors, and responsible 
only to them. A Board of Eevenue at Peking prepares 
the budget, and apportions the amount needed for the en- 
suing year, among the various treasuries and collectorates 
throughout the empire. After these demands have been 
satisfied any surplus revenue belongs to the provincial 
authorities, to be expended or retained, as seems best to 
them. As the demands from the emperor become larger, 



* It is even asserted that there is at the present time but one 
person in all China who holds an absolute freehold title to any- 
real estate, and he in virtue of being a lineal descendant of the 
Ming dynasty which the Manchus supplanted. 



78 THE THEORY AND PRACTICE OF TAXATION. 

the rulers of the provinces become more exacting. There 
is never any decrease in taxation : the tendency is ever the 
other way. Eemission of land taxes is made when any 
great calamities occur, as floods, famines, and fires, and 
in such cases the tenant shares in the remission. Hardly 
a year passes without considerable reductions being made 
on the plea of droughts or floods, and, when the returns 
of the crops show that the year is not one of plenty, the 
viceroy or commissioner need remit only eight tenths of 
the sum apportioned on his district. It has been esti- 
mated that the land tax should yield 138,000,000 taels a 
year, were it honestly collected. The actual returns to the 
imperial treasury from this tax are only 25,000,000 taels. 

Another important item in the imperial revenues of 
China is the monopoly of salt. The importation of foreign 
salt is indicated by the treaties, and the prohibition is 
strictly enforced. While there is no restriction on the 
amount of salt made in the empire, all that is produced 
must be sold to the Government. Other sources of imperial 
revenue in China, apart from this monopoly, are from taxes 
on goods brought through the gates of towns and cities, 
which appear to be analogous to the European octroi taxes ; 
from export and import duties, which are of modern 
origin; and from the sale of honours or titles.* There 
appear to be no taxes on personal property in China; but 
in Pekin, and probably in other cities, small license fees 
are required from certain occupations and manufactures, 
ostensibly for defraying municipal expenditures. 

Owing to the increasing absorption by the imperial 
Government of provincial revenues, the seaboard provinces 
resort more to inland duties, which are so high and nu- 
merous as to impede trade. The privilege of " transit 
passes " was intended to reduce and regulate the inland 
dues, as well as to transfer revenue from the provincial 
into the imperial treasury. The result is not satisfactory, 
largely through the continuous, struggle between the local 
head and the emperor to secure the benefit. Likin was 

* The customs revenue of China for the year 1893 was reported 
as £3,646,350 (or $18,331,750), of which fully one third was de- 
rived from the duties on opium. The average rate of duties on 
other importations was about six per centum of their entered 
valuation. 



LIKIN TAX IN CHINA. 79 

originally regarded as an illegal exaction, but is now au- 
thorized by imperial decree. In its present shape it first 
appeared about 1853, became universal after the Taiping 
rebellion, 1860-61, and is now based upon a notification 
of 1865. It is asserted that the whole of the likin is borne 
by the trade of the Yangtse and Canton Rivers on the 
likin barriers. An English expert, Mr. Jamieson, writes: 
" Their numbers and frequency depend on the amount of 
the trade and the extent to which it will stand taxing with- 
out being absolutely strangled. In some places, as along 
the lower parts of the Grand Canal, the barriers follow 
one another at intervals of twenty miles or so. In other 
places, where trade is scanty and the barriers can be turned 
by detours, there are few, if any. A tariff is arranged, and 
is supposed to be published for general information, but 
nothing is more difficult than to get accurate information 
either from the merchants or officials on this point. In 
point of fact, neither party seems to pay much attention 
to the authorized tariff. Nearly all boats are passed by a 
system of bargaining, the officials ask so much, the mer- 
chant makes a bid, and they haggle till they come to terms." 

Likin is a duty on merchandise in transit, and the 
transit pass was to make that duty unnecessary. To neu- 
tralize this concession a tax called " loti shui " has been 
devised, and may be either a terminal tax, collected on 
the goods in their final market, or a growers' tax, levied 
on the land or produce before the latter has reached the 
foreign merchant, who could claim the protection of a 
transit pass. " It further appears that the likin is being 
extended to industrial works directly and apart from taxa- 
tion of the produce. It recently came under my notice 
that a fee of two hundred taels was paid to the likin office 
for a license to open a new brick factory, and for some 
time the silk weavers in Soochow have been paying a 
small monthly levy per loom as likin. An attempt to in- 
crease it produced a riot. There is in fact no branch of 
the national industry, apparently, to which this tax may 
not be applied — the only limit being the fear of a riot." * 

The imperial revenue of China is believed to be about 

* See a report made in 1896 by H. B. M. consul, Mr. Jamieson, 
on the revenue and expenditure of the Chinese Empire. 



80 THE THEORY AND PRACTICE OF TAXATION. 

85,000,000 taels, or, taking the value of the hailcwari or 
customs tael for 1896, $68,850,000 per annum, although 
the sum actually collected is probably much greater, the 
part that is unaccounted for being absorbed in the taking 
by the prominent officials. Under any circumstances, how- 
ever, the great mass of the people of China are not heavily 
taxed ; and their system of administration, except as it con- 
cerns the transit of foreign imports and exports, has few 
inquisitorial and annoying features ; and to the absence of 
these the permanency of the Chinese Government for so 
long a period, and the tranquility and contentment of the 
Chinese people may, in a great degree, be attributed. 

Taxation in Japan. — Another example of an ancient 
system of taxation, which until a recent period has been 
subjected to very little change, is to be found in the case 
of Japan. In this country, as in China, the system of taxa- 
tion is now, as it always has been, essentially a land tax, 
but greatly modified in recent years to conform to modern 
conditions. During the feudal period in Japan, taxes were 
for the most part paid in kind by the cultivators of the 
soil, and were in fact a form of rent due to the lord of the 
soil. Under the oldest regime, when the emperor was the 
real as well as the nominal head of the government, the 
land was divided into nine squares, the central one of 
which was cultivated by the holders of the other eight, for 
the use of the emperor, who thus received one ninth part 
of the total product of the soil. During the fifteenth cen- 
tury, when the military chieftains — the daimios or Sho- 
guns — had gradually usurped the real power of the em- 
peror, a much larger proportion of the produce of the land 
was exacted; seldom less than four tenths of the total crop, 
and sometimes as much as two thirds. The staple food 
of the country being rice, the taxes were almost invariably 
collected in that commodity. The amount paid, however, 
was not fixed by any national measure, but varied from 
province to province, depending on local customs, the 
humor of the daimio, or other circumstances. Moreover, 
as the established policy of the ancient feudal government 
was to preserve and fix the status of all classes and con- 
ditions of men, it laid down a multitude of vexatious and 
arbitrary rules regulating every kind of production, which 
in turn prevented everything in the way of independent 



TAXATION IN JAPAN. 81 

action and progress on the part of the producers. Thus, 
the Japanese farmer without government permission could 
neither increase nor decrease the amount of his cultivated 
land; nor could he change from the cultivation of rice re- 
quiring a wet or marshy soil to some other agricultural 
product requiring a drier soil. In short, all the conditions 
of land cultivation were so carefully prescribed that the 
farmer had nothing to do but follow a routine that devi- 
ated little from generation to generation. Under such a 
condition of things, especially under such a system of land 
tenure and taxation, population obviously could not, and 
in fact did not, increase either in wealth or numbers; and 
taken in connection with the circumstance that each of the 
many daimios or feudal lords maintained great retinues 
of wholly unproductive retainers, we find an explanation 
of the fact that Japan continued a poor country with a 
very slowly increasing population even in times of pro- 
found peace. During the century and a quarter from 1721 
to 1846, the increase is reported by Japanese authorities to 
have not been in excess of five per cent.* 

After the restoration in 1873 of the authority of the 
emperor, and the abrogation of the daimio system or lord- 
ship, a radical change was made in Japan, not only in the 
general status of the farmer, but in the conditions under 



* According to a paper read by Professor Droppers before the 
Asiatic Society in Tokio, June, 1894, this period was a time of 
only measurably suppressed anarchy and lawlessness. It was two 
hundred and fifty years of armed truce. It was oneHarge dance 
to death. Famines were frequent and dreadful. Having no rail- 
roads or steamships, and having, in their eagerness to shut out 
foreigners and keep in their own people, destroyed all sea-going 
ships, they had no water transportation except by means of 
wretched junks. Millions upon millions died of hunger. To this 
day, around the cremation houses of certain inland cities there 
are acres of heaps of human bones mixed with ashes, the awful 
witnesses to the might of famine, when hundreds of bodies were 
burned daily to prevent pestilence. Child murder and exposure 
were in some provinces so common that the question which neigh- 
bours would ask of a father, whether he intended to raise the 
newborn baby or not, was as proper as it was usual. It is esti- 
mated by medical men that fifty per cent of the people died of 
smallpox. Syphilis was almost a national disease. Disease, im- 
morality only partly suppressed, anarchy, famine, social and eco- 
nomical antagonisms, cramped Japan as in bands of iron. 



82 THE THEORY AND PRACTICE OP TAXATION. 

which he cultivated the soil and paid his taxes. All the 
previous iron rules imposed upon him were abolished; he 
was given perfect liberty to buy and sell land or adopt new 
modes of cultivation. The system of payment in kind to 
each provincial lord was replaced by a national land tax 
paid in money. The value of every piece of cultivated land 
was appraised according to a complex and somewhat arbi- 
trary method of valuation, and on this capitalized value 
three per cent was imposed, in addition to a Government 
tax of one per cent for local purposes. In 1876 a decree 
was issued reducing the general tax to two and a half per 
cent, and the local tax to one half of one per cent. At the 
same time, with a view to supplement this reduction of 
local taxation and increase the national revenues, taxes were 
imposed on spirits and tobacco, on sales (at varying rates), 
on contracts, receipts, land transfers, petitions (through 
the agency of stamps), on some professions and mechanical 
pursuits, and on the ownership and use of ships, boats, 
and vehicles. The land taxes, however, contribute the 
largest amount of revenue to the national treasury, furnish- 
ing about seventy per cent of its receipts, exclusive of the 
local land taxes; and in many districts of Japan the total 
amount yielded by the farmer to the Government, national 
and local, was estimated in 1891 at even more than fifty 
per cent of his crop.* 

* " This statement, however, gives no indication of the true 
condition of the Japanese farmer. In this country, where the 
Government performs so many functions which in America are 
left to the ^dividual, a high rate of taxation is not necessarily 
an indication of poverty or of a low standard of living. With a 
sufficiency of land and a variety of crops, even the Japanese farmer 
can live comfortably, especially if a good fraction of his land is 
dry field (hata) on which he generally raises two crops a year. 
Very few of the farmers of Japan, however, are in this condition 
of tolerable comfort. The amount of the cultivated land of the 
empire is so small (less than twelve per cent of the whole area) 
and the population so large (over forty millions) that the land 
belonging to each family is absurdly insufficient. The average 
holding is less than two acres, subdivided into smaller parcels, 
which vary in size in different provinces, but average nearly one 
eighth of an acre each. Thus, to picture a typical Japanese farm, 
one must imagine a piece of land less than two acres, cut up into 
about fourteen pieces, or bits, each separated from the other by 
a raised path of earth. Even then the picture is incomplete, since 
the bits belonging to one farmer are not necessarily adjacent to 



TREATIES WITH JAPAtf. 83 

Very curiously, the responsibility for the existence and 
continuance of this extraordinary system of land taxation 
in Japan, which finds no parallel in any other country, and 
the incidence of which constitutes such a burden on the 
mass of its population, has until a very recent period rested 
with foreign nations rather than the Japanese Govern- 
ment, and in this wise : When treaties were first made by 
foreign nations with Japan, after the opening of its ports 
and the abandonment of its old-time system of non-inter- 
course with the rest of the world, it was assumed on the 
part of the former that the Government and people of 
Japan were in a semi-barbarous condition, and ought to 
be treated as such in all political and commercial negotia- 
tions ; and that in respect to trade and commerce the great- 
est advantage should be taken of the weaker nation that 
circumstances would permit. The leading nations of Eu- 
rope and the United States accordingly stipulated, in their 
treaties with Japan, that it should not impose any duties 
on exports or imports in excess of five per cent; and the 
receipts from customs being thus arbitrarily made insig- 
nificant, and those from such other sources as spirits, to- 
bacco, licenses, and the like being normally inadequate, 
the Government of Japan has been compelled to resort to 
the old feudal system of taxation as the only practical way 
of obtaining revenue to defray its necessary expenditures.* 



each other, but frequently many a rood apart. Such a beggarly 
amount of land, even under the most perfect system of cultivation, 
can not of course yield sufficient to bring up a family according 
to Western standards of comfort. The idea of wages, or remunera- 
tion for labour, scarcely enters the Japanese farmer's mind; he 
is content if, after paying his taxes, he can in some rough fashion 
merely make both ends meet. At any fair rate of wages, farming 
is carried on at a loss in Japan. The farmer seldom eats the rice 
he grows, generally using barley or millet as a cheaper means of 
subsistence. His expenditures are on an infinitesimal scale; the 
clothes of the family are often heirlooms handed down from gen- 
eration to generation; and as for saving anything from year to 
year; the practice is so little known in this country as hardly to 
be considered a virtue." — Correspondence New York Nation, 1891. 

* Recent treaties (1894) have in a degree abrogated the dis- 
abilities which foreign nations imposed on Japan at the time of 
the abandonment of its policy of non-intercourse with the rest 
of the world, but a denial of the right of Japan exclusively to 
regulate its taxes (duties) on imports is still maintained. 



84 THE THEORY AND PRACTICE OP TAXATION. 

But, notwithstanding this, the results that have fol- 
lowed the fall of feudalism in Japan in 1868 are in the 
highest degree interesting, and constitute an important 
contribution to the history of civilization. Between 1871 
and 1893 the population increased eight millions, railways 
and steamers have annihilated famine, old epidemics have 
become rare, the severity of old criminal law has been 
greatly mitigated, while liberty has encouraged the people 
to a wonderful activity and progress. 



CHAPTER III. 

GREECE AND ROME. 

Taxation in Ancient Greece. — In Athens, according 
to Boeckh, the revenues of the state were derived from 
receipts from the public domains, including mines, partly 
from taxes analogous to our " customs " and " excise," and 
some taxes upon industry and persons which only extended 
to aliens and slaves; from fines and justice fees, from the 
proceeds of confiscated property, and from tribute from 
allied or subject states. All the exports and imports of 
Athens, at one period, were subject to a small duty of two 
per cent ; and in addition to this, foreign ships lying in the 
harbour paid a small fee, as did also aliens for the privilege 
of selling commodities, arriving by sea, in certain desig- 
nated market places. " A special tax was also levied upon 
the proprietors or occupants of houses, the doors or win- 
dows of which opened outward on the public footway. 
And, as throwing further light on the social system of an- 
cient Greece, we have the statement on good authority that 
the Greeks, having no pockets, used to leave valuable arti- 
cles in sealed packets, trusting to the laws which punished 
the violation of a seal. Direct taxes/' according to Boeckh, 
" imposed upon the soil, upon industry, or upon persons, 
excepting in cases of emergency, were looked upon in 
Greece as despotic and arbitrary; it being considered as a 
necessary element of freedom that the property of a citi- 
zen, as well as his occupation, should be exempt from all 
taxation, except when a free community taxed itself, which, 
however, is obviously an essential part of liberty." Poll 
taxes were exacted by the Athenian state, but as such taxes 
were considered ignominious and as implying subjugation, 
they were only assessed upon slaves or subjugated foreign- 
ers; and failure to pay was regarded in the light of a 
capital offence. 



86 THE THEORY AND PRACTICE OF TAXATION. 

The income of Athens from fines appears to have been 
considerable, and to have constituted a singular and perma- 
nent feature of the fiscal policy of the state. Its method 
of assessment may be best illustrated by examples. Thus, 
if duly authorized officials did not hold certain assemblages, 
according to rule, or properly conduct the appointed busi- 
ness, they had each to pay a thousand drachmas ($200). 
If an orator conducted himself indecorously in a public 
assembly, he could be fined fifty drachmas (ten dollars) 
for each offence, which might be raised to a higher sum at 
the pleasure of the people. A woman conducting herself 
improperly in the streets paid a similar penalty. If a 
woman went to Eleusis in a carriage, she subjected herself 
to a fine of a talent ($1,180). In the case of wealthy or 
notable persons, fines for omissions or commissions in re- 
spect to conduct were made much greater, and so more pro- 
ductive of revenue; and there were very few notable or 
wealthy citizens of Athens who under the rule of dema- 
gogues, and through specious accusations of offences against 
the state or the gods, escaped the payment of heavy fines; 
the experiences of Miltiades, Themistocles, Aristides, De- 
mosthenes, Pericles, Cleon, and Timotheus being cases in 
point.* Every person who failed to pay a fine owing to 

* It was probably the contemplation of this state of things 
that led her great philosopher Aristotle to the conclusion, ex- 
pressed in his essay on Politics, that " the rule of an irresponsible 
majority can be just as despotic as that of a single tyrant." He 
defines this extreme democracy as that " in which the majority, 
and not the law, is supreme " — in other words, " when decrees of 
the people, and not the law, govern." By " law " is meant a fixed 
code of statutes, which can not be changed or repealed by the 
ordinary legislative power. The latter can pass only decrees in 
conformity to the fixed code, which thus corresponds to our written 
constitutions. Such absolute power, he says, makes the people 
a monarch, and finally a despot refusing to be subject to law; 
and " such a democracy is analogous to tyranny." Both have the 
same character, for " both exercise a slaveholder's rule over the 
better citizens." In one we have decrees, in the other edicts; in 
one demagogues are in authority, in the other flatterers. When 
a dispute arises, the cry always is, " The people must settle it," 
and everything is determined by the momentary will of the su- 
preme multitude. From this state of things the wisdom of our 
fathers has saved us, and the Supreme Court of the United States, 
as a rule, decides questions of constitutional law with far more wis- 
dom and dignity than its predecessor, the popular court of Athens. 



FINES AND LITURGIES. 87 

the state was reckoned as a public debtor, and was subject 
to imprisonment and a practical denial of citizenship ; Mil- 
tiades, the victor at Marathon, for example, having been 
cast into prison (where he afterward died) through an 
inability to pay a fine assessed against him of fifty talents.* 
Another curious feature of the fiscal policy of Athens 
was an indirect augmentation of the public revenues, by 
diminishing the public expenditures through an institution 
which was essentially one of differential exaction (mis- 
called taxation), and was known as " liturgies." They con- 
sisted in the conferring upon ambitious and wealthy citizens 
certain honorary public offices to which nothing of salary 
or compensation was attached, but which entailed large 
expenditures for the entertainment of the people or defence 
of the country. The acceptance of these offices was compul- 
sory; parsimony in expenditure on the part of the holder 
exposed him to public censure; and the institution un- 
doubtedly found favour with the masses as a method of 
dividing the property or consuming the incomes of the 
wealthy. The system of liturgies was not, however, pecul- 
iar or restricted to the Athenian state. It existed in the 
Greek cities of Asia Minor, and also to a certain extent 
in Rome, where the persons accepting the office of agdile, 
whose business it was to take care of public edifices and 
superintend public festivals, were expected to appropriate 
large sums from their private resources for the convenience 
and amusement of the people. The office of sedile in Rome, 
which was one of great honour, was thus only made acces- 
sible to the very wealthy. But as the office was, however, 
in the direct line of preferment to some lucrative office 
in the provinces, the expenditures of its occupant were 
probably regarded in the light of an investment, from 
which more than complete remuneration was to be expected 
in the future, f The principle involved in the liturgies 
would also seem to find recognition and exemplification 
in modern times, and under a different civilization, but in 
accordance with the same human nature; as, for example, 
in Great Britain, which, by requiring members of Parlia- 
ment to serve gratuitously, virtually restricts membership 

* Boeckh's Public Economy of Athens, vol. ii, pp. 105-118. 
| Boeckh, vol. ii, pp. 199 et seq. 



88 THE THEORY AND PRACTICE OF TAXATION. 

in that body to wealthy citizens; and also in the United 
States, which, by paying her judges and most of her other 
great officers of state inconsiderable and inadequate sala- 
ries, practically reduces the cost of her Government, and 
virtually makes merchandise of her honours by entailing 
a part of the proper expenses of such offices upon every 
first-class incumbent of them.* 

The comparatively small expenditures of the Athenian 
state should also be considered in connection with their 
revenue requirements. Thus, Mr. Grote estimates the an- 
nual expenditure of Athens, in the time of Pericles, at one 
thousand talents, or $1,180,000; and, according to Mr. 
Boeckh, the revenues of the city never exceeded two thou- 
sand talents, or $2,360,000. The annual tax paid on the 
property of Demosthenes by his guardians amounted to 
only one fifth of one per cent of its valuation; and as, 
before the Peloponnesian war, the receipts from the silver 
mines owned by the state were so abundant that the sur- 
plus revenue was divided among the citizens of Athens, 
it is evident that for a time there was no necessity for 
taxation. 

Taxation in Home. — Up to the time of Servius Tullius 
taxation in Eome consisted of a capitation assessment, arbi- 
trarily fixed, without regard to the means of the individ- 
ual, f After the termination of the last Punic war, and 
down to nearly the epoch of the Empire — a period of at 
least one hundred and twenty-five years — the people of 
Eome were exempt from all direct taxation. This was due 
to the circumstance that Eome had accumulated great 
wealth, and was in receipt of an annual revenue from her 
conquered provinces fully adequate to defray all the ex- 
penses of the government, including the military establish- 
ment of the state. A large revenue for a considerable 
period was also derived from the imperial silver mines in 



* It will not probably be disputed that the talent and experi- 
ence which ought to be prerequisite to the holding and proper 
discharge of the duties of many of the important offices of the 
Government of the United States — judges, cabinet ministers, for- 
eign ministers, consuls, etc. — will command in private life a much 
higher compensation or salary than is paid by the state. 

f Ortolan, History of Roman Jurisprudence, English edition, 
p. 257. 



TAXATION IN ROME. 89 

Spain. Cicero, who lived before the empire, in one of his 
epistles to Atticus, laments the possibility of a resort to 
taxation by the state at some time in the future as some- 
thing ominous of evil. 

One of the first acts, however, of Augustus, after assum- 
ing the reins of government, was the gradual institution 
of an extensive system of taxation. He organized a land 
tax for the whole empire; and followed it up with what 
Gibbon terms " an artful assessment " on the real and per- 
sonal property of the Koman citizens, who, as before shown, 
had been long exempted from any contributions for the 
support of the state. A tax of five per cent, or one twen- 
tieth, was also imposed on all legacies and successions, 
which did not apply to objects inherited of less than a 
specified value ( " probably," says Gibbon, " of fifty or a 
hundred pieces of gold " ) ; nor was it exacted from the 
nearest of kin on the father's side.* 

This tax, which appears to have been most productive, 
was one of the most permanent taxes of the empire, and its 
amount was increased by the successors of Augustus. 

Gibbon seems to have been in doubt as to the motive 
which prompted Augustus to incorporate these new fea- 
tures of taxation in the Eoman governmental policy, and 
suggests a desire to relieve the provinces from their burden 
of tribute, or to effect the impoverishment of the senate 
or the "equestrian" (knights) order. A more modern 
and probably a more correct view is, that Augustus recog- 
nised that, as Borne possessed all the known world that she 
considered worth possessing, the profitable results of fur- 
ther conquests, and the drain of accumulated wealth from 
subjugated nations, had practically come to an end; that 
her army henceforth existed mainly for maintaining the 
integrity of the empire, or for defence; and that for its 
support, in default of opportunities to plunder, an exten- 
sive and rigorous system of taxation had become necessary. 

* " Such a tax was most happily suited to the situation of 
the Romans, who could frame their arbitrary wills according to 
the dictates of reason or caprice, without any restraint from the 
modern fetters of entails and settlements. From various causes, 
the partiality of parental affection also often lost its influence 
over the dissolute nobles of the empire; and if the father be- 
queathed to his son a fourth part of his estate, he removed all 
grounds of legal complaint." — Gibbon, vol. i, p. 192. 
7 



90 THE THEORY AND PRACTICE OF TAXATION. 

Under the system of taxation established by Augustus 
and extended by his successors, most of the taxes known to 
modern times were anticipated by the Eomans. Apart 
from the taxes on land, they had export and import taxes ; 
tolls for passage over bridges; a tax upon salt; a tax in 
kind upon corn (wheat), barley, wine, oil, meat, and wood; 
a tax upon the value of manumitted slaves ; on sales ; and 
a capitation or poll tax. Of other notable and peculiar 
Roman taxes was one on the wages of prostitutes ; and apart 
from his wars with the Jews and the building of the Colos- 
seum, the Roman Emperor Vespasian is best known in his- 
tory as the originator of a tax on urinals. 

Excepting possibly the land tax, there does not appear 
to have been any general and uniform system of taxation 
for the whole empire. The taxes on imports and exports 
were not uniform, and there were separate customs dis- 
tricts, each with a tariff of its own, and some with special 
immunities. Under the reign of Augustus and his suc- 
cessors, duties varying from an eighth to the fortieth part 
of the value of the commodity were imposed at Rome on 
every kind of merchandise, "which through a thousand 
channels flowed to the great centre of opulence and luxury ; 
and in whatsoever manner the law was expressed, it was the 
Roman purchaser and not the provincial merchant that 
paid the tax." * 

A general tax (characterized by Gibbon as an excise), 
seldom exceeding one per cent, was also exacted at 
Rome on whatever "was sold in the market place, or by 
public auction, from the most considerable purchase of 
land and houses to those minute objects which can only 
derive a value from their infinite multitude and daily con- 
sumption." As exports were subject to Roman taxation 
as well as imports, and as the average rates imposed in 
both cases were probably low, these forms of taxation ap- 
pear to have been in the nature of a payment for the privi- 
lege of conducting commerce; imposed for the purpose of 
revenue only, and without the slightest reference to any 
contingent influences on trade or industry. In fact, the 
idea of promoting (protecting) industry through taxes on 

* Gibbon, vol. i, p. 190, who in turn cites Tacitus, Annals, vol. 
xiii, p. 31, as authority. 



ROMAN TAX-GATHERERS. 91 

exchanges appears to have found little place in Eoman or 
any other ancient economic history or experience. 

In accordance with a practice on the part of the ancient 
Romans of deifying abstractions — as war, love, navigation, 
thievery, and the like — we find mention of the Genius of 
the Custom House, or of Indirect Taxes (genius portorii 
publici), a divinity that seems to have survived to our own 
times; inasmuch as many of the curious phenomena that 
have occurred in connection with modern efforts to prevent 
free exchanges through the agencies of customs taxation, 
seem only capable of explanation on the assumption that 
some occult power has been more potential in shaping eco- 
nomic events in this department of government than any 
proper exercise of man's reasoning faculties; and that it 
is the part of wisdom that large sacrifices should be made 
by the people in order to propitiate this deity. 

Throughout the whole course of their history the prin- 
cipal taxes levied by the Romans appear to have been col- 
lected through the instrumentality of a class of officials 
known as "publicans," who paid the government for the 
privilege of so doing; and who, intrusted with extraordi- 
nary powers, were allowed, by way of compensation for 
their services, to collect and retain as much of additional 
revenue as they could force or extort from the taxpayers 
for their individual and private benefit. Such an adminis- 
tration of the publicans necessarily involved and required 
the employment of a large number of subcontractors and 
deputies, who, stationed at seaports, on public highways, 
at the gates of cities, and the market places, examined all 
goods exported, imported, or offered for sale, estimated 
their value, and collected the taxes to which they were 
legally liable, and as much more as they could extort with 
impunity, for the benefit of their masters or themselves — 
which last, in disorderly times and under the bad emperors, 
had a very wide latitude. This wretched system of " farm- 
ing" or discounting the revenues of the state, which ap- 
pears to have been a permanent feature of the government 
of Rome at all periods — under its kings, under the republic, 
and under the empire — has, moreover, a feature of general 
interest, as it clearly illustrates the exceeding limitation 
and narrowness of the general Roman policy in the sphere 
of civil administration. 



92 THE THEORY AND PRACTICE OF TAXATION. 

Another fact pertinent to the general philosophy of 
taxation, which the historical study of Eoman polity has 
developed, is also especially worthy of notice in this con- 
nection. As has been previously stated, the Romans, for 
a period of at least one hundred and twenty-five years 
before the establishment of the empire under Csesar, were 
enabled, through the great spoils of war obtained from 
subjugated nations, to relieve themselves from taxation 
for the support of their government; and, in so doing, it 
appears that they first threw off their direct taxes, and at 
a later period those taxes that were indirect. But when 
under Csesar it became necessary to reimpose taxes, they 
established them in a reverse order — that is, the indirect 
taxes were renewed first and in preference to those which 
were direct; thus recognising and affirming in practice the 
idea that characterizes the fiscal policy of most modern 
governments — namely, that it is expedient to conceal as 
far as possible the burden of taxes from the people who are 
to pay them. 

The gross amount of annual revenue which the empire 
of Eome collected in its best day is estimated by Gibbon 
to have been about twenty million pounds sterling ($100,- 
000,000) ; later authorities place it at a much higher figure, 
or $200,000,000. In default, however, of exact informa- 
tion as to the purchasing power of money at the time, it is 
obvious that neither of these estimates can give us any 
true idea of the real amount of the Roman revenue; but, 
taking the probable price of wheat in Rome at the close 
of the republic as an indication of the price of other com- 
modities, the purchasing power of Gibbon's twenty million 
pounds sterling ($100,000,000) must have represented a 
much greater sum, or at least $150,000,000. If the largest 
of these estimates of the revenue of imperial Rome should 
seem inadequate for the support of a government that ex- 
tended over the greater part of the then known surface 
of the earth, that included a population of at least 150,- 
000,000, and maintained a military and naval establish- 
ment of 450,000 men, it should be remembered that, apart 
from the greater increased purchasing power of money 
that now prevails, the expenditure by the state for the sup- 
port of its military forces was comparatively small ("the 
ratio of military draft upon society before the inception 



PROVINCIAL TAXATION OF ROME. 93 

of Rome's decadence being but little more than one third as 
great as that of the seven principal states of present En- 
rope " *) ; that the present complexity and magnitude of 
expenditure in the form of taxes did not exist; and that 
a Roman national debt, with its burden of constantly accru- 
ing interest — the one thing most grievous to modern states 
— was entirely unknown. 

The taxes, or rather exactions, on the people of the con- 
quered provinces of Rome were always more numerous, dis- 
criminating, and onerous than those levied upon the popu- 
lation of the imperial city and its adjoining districts ; and 
from the time of the Emperor Diocletian they became 
more and more destructive of industry, and fell with special 
weight upon agriculture. According to Sir James Stephen, 
the land tax in Gaul rose to " the almost incredible amount 
of one third of the net produce of the land " ; but what is 
more singular and incredible, the present tax on the peasant 
agriculturist of Italy is, in some cases, equivalent to the 
value of an even larger share of his product. 

The provincial taxes which gave rise, however, to the 
greatest discontent were the poll tax and a tax upon 
funerals. These were easy to collect, and consequently in 
favour with the Roman tax-gatherers ; but being levied at 
fixed and undiscriminating rates, pressed with great and 
unequal severity upon the poor. The last-mentioned tax 
— i. e., upon funerals, which required payment before the 
burial of the dead — was said to have formed one of the 
principal causes of the revolt of the Iceni (Britons), under 
their famous warrior, Queen Boadicea. The decree men- 
tioned in St. Luke's Gospel, of Csesar Augustus, that all 
the world should be taxed, and in pursuance of which 
" every one went into his own city," unquestionably re- 
ferred to a poll-tax assessment, and to its required pay- 
ment in person by every adult at the Roman tax-collector's 
office nearest to an established centre of Roman authority.! 

In the province of Gaul the annual tribute exacted from 
every head under the reign of Constantine was reported 
to have been twenty-five pieces of gold. But the possibility 



* Baker, The Grandeur and Decadence of the Romans. D. 
Appleton & Co., 1894. 
t Luke, ii, 1. 



94 THE THEORY AND PRACTICE OF TAXATION. 

of the payment of such a high capitation tax has been ex- 
plained by the circumstance that in all the provinces of the 
Eoman world the majority of the people were slaves, or 
peasants whose condition was little different from slavery; 
and that the rolls of tribute embraced only the names of 
citizens who possessed the means of an honourable or at 
least of a decent subsistence. 

The whole record of Eoman experience in respect to 
revenue collection or taxation before the decadence of the 
empire, alike in the city of Eome and in her provinces, is, 
however, of no value, save from an historical point of view. 
It does not appear, as before noted, to have been based upon 
any well-devised and harmonious fiscal system, or to have 
had any influence whatever in originating or developing 
one; for, unlike other Eoman customs and institutions, it 
everywhere fell into disuse when the authority of Eome 
was withdrawn. In one feature alone was Eome consistent 
in her views and harmonious in her practice in respect to 
taxation: she always levied taxes for the purpose of get- 
ting money into the public treasury and for no ulterior 
reason. The nearest approach on the part of the Eomans 
to a recognition of the policy of stimulating a branch of 
industry through the instrumentality of bounties or sub- 
sidies seems to have occurred in connection with the distri- 
bution of wheat gratuitously, or at artificially low prices, 
among the poor and idle masses of the imperial city ; which 
practice, originally adopted under the republic, with a view 
of obviating popular discontent, and continued, with addi- 
tions of oil and meat under the empire, finally became a 
cause of great anxiety to the emperors lest anything should 
interfere with the movement of grain, which was mainly 
by sea from Africa and Sicily. To insure regularity and 
efficient service, the state at first farmed out the right to 
transport the crops to certain wealthy individuals ; and this 
inducement to enterprise proving insufficient, the Emperor 
Claudius gave a bounty for each successful trip of the grain 
fleet. The construction of ships was also encouraged by 
subsidies, and in this way there grew up a class of wealthy 
shipowners, whose profits and incentive to business were 
obtained from the state, and who by organization into an 
association (analogous to the modern trust) under the 
name of " Naviculari" with branches in every city or town 



ROMAN CONTEMPT FOR LABOR. 95 

in the provinces, and with wealthy and influential sena- 
tors among its stockholders or patrons, attained to great 
prominence and influence in the third and fourth centuries. 

Taxation, in at least one notable instance, was also em- 
ployed by the Romans as an instrumentality for the correc- 
tion of a social evil — namely, a disinclination on the part 
of wealthy citizens, in the latter days of the republic and 
throughout the whole period of the empire, to contract mar- 
riages, with a view of avoiding the cares and burdens of a 
family. To counteract this tendency, a tax (" ces uxo- 
rium ") was imposed on bachelors, with a limitation (" lex 
Julia et Papia Poppcea " ) on the transmission of property 
by will or gift by the unmarried and the childless.* 

The statesmen and administrators of Rome seem never 
to have given a thought to the desirability of encouraging 
industry, trade, or commerce among their own people, much 
less among the people they had subjugated. There was, 
throughout all their literature and laws, the contempt 
which brigands and barbarians entertain for honest in- 
dustry at least when that industry is not agricultural. To 
create wealth appeared to them sordid; to take it was ad- 
mirable, or, as M. Blanqui has put it, the economic policy 
of the Roman state may be expressed in the following single 
sentence, " Les romains voulaient avant tout consommer 
sans produire." f 

* In the seventeenth and eighteenth centuries there was well- 
nigh universal legislation of this kind, the most thoroughgoing 
specimens being a Spanish edict of 1623 and one of Louis XIV in 
1666, which not only granted exemption from taxation, but posi- 
tive subsidies in cash, as an inducement to early marriages. That 
the idea involved in such legislation has also found favour at the 
present time is shown by the fact that Professor Richet, a Ger- 
man economist of repute, has recently proposed that in all systems 
of taxation the fathers of large families be favoured, and that 
corresponding burdens be laid on those who contumaciously refrain 
from marrying; ignoring the fact that old Rome adopted and 
carried out this policy by measures much more drastic than the 
spirit of the present times would tolerate, and that the result is 
generally believed to have been a failure. It is also worthy of 
note that at the present time, in the Canadian Province of Quebec, 
the fathers of the largest families receive bounties of public lands ; 
the motive of which policy is unquestionably to bring the French 
Canadian element into the control of the Dominion Government. . 

t See Blanqui, Histoire de l'Economie Politique en Europe. 
American translation by Emily J. Leonard. New York, 1880. 



96 THE THEORY AND PRACTICE OP TAXATION. 

The genius of the Eoman government was military, not 
commercial. The Eomans prohibited commerce to persons 
of rank and fortune; and no senator was allowed to own 
a vessel larger than a boat sufficient to carry his own food 
(grain) and fruit. They encouraged corn merchants to 
import provisions from Sicily, Africa, and Spain, because 
the cultivators of the soil of Italy, mainly slaves, did not 
produce a sufficient supply of food for the city of Eome. 
They seem, moreover, never to have had any conception 
of the impolicy of levying taxes in such a way as to dry 
up the channels of trade and enterprise; or of the fact, 
abundantly substantiated by all experience, that when gov- 
ernment takes from its people more than a fair share of 
the savings of capital and labour, then accumulation will 
cease and capital be destroyed ; and against social disorders 
thus engendered Eome was powerless. That the seeds of 
decay were thus planted in her governmental system, and 
that the fall of her empire was hence only a question of 
time and inevitable, is a point that historians seem very 
generally to have overlooked. 

During the years of the later empire, although its re- 
sources and population had greatly decreased, its expendi- 
tures enormously increased; and the sequence of this was 
a system of grinding exactions, to which, more than any 
other one immediate cause, the utter decay and final com- 
plete downfall of the empire may be attributed. During 
the period intervening between the reign of Marcus Au- 
relius and Diocletian it has been estimated that a majority 
of the population of the empire, from Persia to Gaul, had 
died of the plague; and what the plague had been to the 
population, the " fiscus " or financial policy of the govern- 
ment was to industry. Under Constantius, a. d. 337, 
taxes were imposed on all trades and industries, and such 
was the comprehension and severity of the law, Gibbon 
tells us, that "the honourable merchant, the usurer who 
derived from the interest of money a silent and igno- 
minious profit, the ingenious manufacturer, the diligent 
mechanic, and even the obscure retailer of a sequestered 
village, and the public prostitutes/' were all alike obliged 
to admit the officers of the revenue to a participation of 
their gains. Such, moreover, was the imperfect state of 
agriculture and of manufacturing processes that the net 



SEVERITY OP ASSESSMENTS. 97 

product of the individual was necessarily very small — so 
much so that it has been estimated that the labour of several 
individuals was required to supply even the necessary food 
of one inactive person. But as the people became exhausted, 
the demands of the government, contingent on the main- 
tenance of an extravagant court and a large standing army 
of soldiers and officials, became greater, the severity in the 
methods of exaction increased, and in no two provinces was 
the authority of the government (sovereign) exercised in 
the same manner.* With malignant ingenuity, and with 
a view of perfecting the control of the state over the in- 
dividual, and doubtless more especially for facilitating the 
operation of the officials charged with the duty of collect- 
ing taxes, every man's position was fixed for him by the 
conditions of his birth. The son of a cultivator of the soil 
was chained, as it were, to the lands tilled by his father. 
The workmen in all other departments of industry were 
bound to their position for life, and when they died their 
places were taken by their sons. " If any one of them 
deserted his work, he was sought out, even to the remotest 
provinces, and ruthlessly dragged back to his post." f If 
he failed to produce a prescribed result, the state inter- 
vened and forced its accomplishment. In making assess- 
ments for taxation, visible tangible property was enrolled 
with great minuteness by officers who corresponded to our 
modern assessors. The lands were measured by surveyors ; 
their nature — whether arable or pasture, vineyards or 
woods — was distinctly reported ; and an estimate was made 
of their value from their average produce for five years. 
Every new purchaser of land contracted all the obligations 
of former proprietors. Slaves and cattle were counted 
separately, and carefully reported for assessment; and by 
the Theodosian Code, which for the time was an almost 
universal law, death and confiscation of estate was the 



* Alfred Rambaud, L'Empire Grec au Dixieme SiScle. Paris, 
1870. 

t By a law of the Emperor Theodosius, in 438 a. d., it was pro- 
vided that the fabricenses (meaning thereby the workmen engaged 
in the fabrication of arms) " shall be so closely bound to their 
appropriate duties that, worn out at last by their toil, they shall 
die in the profession to which they were born — both they and their 
children after them." — Codex Theod., ii, 9, 4- 



98 THE THEORY AND PRACTICE OP TAXATION. 

punishment to which every farming proprietor was liable 
who should attempt to evade taxation. 

In respect to the assessment and collection of taxes on 
personal property, the accounts that have come down to us 
are most interesting, and ought to be full of instruction 
to legislators of the present day who believe in pattern- 
ing tax administration after. old and vicious experiences, 
so far as the changed conditions and ideas of civilization 
in the nineteenth century will admit. The proprietor of 
such property was, in the first instance, questioned under 
oath; and every attempt to prevaricate or elude the inten- 
tions of the legislator was punishable as a capital crime, 
and was held to include the double guilt of treason and 
sacrilege. If the results of personal interrogation under 
oath were not satisfactory to the tax officials, they were 
empowered to administer torture; and when personal 
stoicism or absolute incapacity failed to effect the desired 
results, resort was had to other, most abhorrent, and un- 
natural methods for procuring the sum at which their 
property was assessed — "the faithful slave being tortured 
for evidence against his master, the wife to depose against 
her husband, and the son against his sire. Neither age 
nor sickness exempted from liability and personal inquisi- 
tion. In taking ages, they added to the years of children 
and subtracted from those of the elderly. When the num- 
ber of cattle fell off and the people died, the survivors 
were obliged to pay the assessments on the dead." Zosi- 
mus, a historian who wrote in the early part of the fifth 
century, says that the approach of the fatal period when 
the general tax upon industry was to be collected " was an- 
nounced by the tears and terrors of the citizens." 

That the result, so far as the execution of the law was 
concerned, was a success, can not be doubted; nor that by 
the methods employed large amounts of revenue were col- 
lected that otherwise could not have been obtained. But 
what were the final results? First, a demonstration of an 
economic truth, which in subsequent years has over and 
over again been repeated, that the productiveness of a tax 
is not its first consideration; and that a blight contingent 
on the method of assessing and collecting a tax may ruin 
a harvest which it can not gather. Under the state of 
things, as described, that prevailed under the latter days 



DESTRUCTIVE TAXATION. 99 

of the Eoman Empire, the agriculture of its provinces was 
gradually ruined. Long before the footsteps of the bar- 
barians had been seen in Italy, a large part of what had 
been its most fertile portion and the seat of " the delicious 
retirement of the citizens of Home," had become unculti- 
vated and a desert. " The desire and possibility of ac- 
cumulation languished, and men produced only what would 
suffice for their immediate needs; for the government laid 
in wait for all savings. Capital vanished, the souls of men 
were palsied ; population fled from what was called civiliza- 
tion, and sought concealment and relief in barbarism and 
with barbarians. Men cried for social death, and invited 
the coming of savages ; and in the form of Goths and Van- 
dals, Huns and Heruli, Franks and Lombards, they came, 
and the empire of Eome and its degraded civilization went 
down in almost universal turmoil, bloodshed, robbery, and 
woe." There is also good reason for believing that the 
Turks were greatly indebted for their success in overthrow- 
ing the subsequent Byzantine or Greek Empire to their 
simple methods and policy in respect to taxation ; and that 
the subjects of the empire were glad to change their mas- 
ters, because instead of multiplied, intricate, and vexatious 
taxes, the legacy of old Eome, they found themselves sub- 
ject to a simple tribute, easily collected and easily paid.* 

* The most available source of information on this subject is 
the historian Gibbon (Decline and Fall of the Roman Empire, 
edition with notes by Milman, Guizot, and Smith; New York, 
Harper's), who in turn specially cites as the authority for his 
statements the two collections of ancient laws designated by the 
names of the two Byzantine emperors under whom they were 
made, as the Codex Theodosianus and Codex Justinianus, and the 
writings of Zosimus, a Greek historian, who lived in the early 
part of the fifth century a. d., and whose history of the Roman 
Empire is still extant. For an exceedingly graphic account of 
Roman experiences in attempting to tax personal property (from 
which quotations have here been made) see Roman Imperialism, 
in Lectures and Essays, by J. R. Seeley, London, 1870. 



J 



CHAPTEE IV. 

TAXATION IN THE MIDDLE AGES. 

With the termination of the Roman Empire of the 
West, which is regarded as having taken place a. d. 476, 
when Odoacer, chief of the Germanic tribe Heruli, cap- 
tured the city and assumed the title of King of Italy, a 
new and great element was introduced into European life, 
through the intermingling of the northern barbarians with 
the civilized, Christianized, and degraded Romans of the 
south. The following period, for at least five hundred 
years, was characterized, to an extent never before sur- 
passed in the world's history, by bloodshed, license, licen- 
tiousness, turmoil, robbery, and woe. Franks, Burgun- 
dians, Visigoths, Saxons, Slavs, Huns, Danes, and Nor- 
mans crowded upon and warred with each other. From 
such a period, when neither the agriculturist nor the ar- 
tificer could control to any great extent the fruits of his 
labour, and when the merchant " stole along the hedges, 
shrank from the eye of the passer, and stepped into rivers 
cautiously, seeking a ford, lest the man at the bridge 
should rob him," but little in the way of economic or fiscal 
principle could be deduced. In short, a new society, the 
foundation and precursor of what now exists, was in the 
process of evolution; but in order that evolution might 
commence, it would seem to have been necessary that all 
the elements of the old should be completely dissolved, in 
order that its atoms might move freely — a condition like 
that to which the chemist is compelled to bring earthy min- 
eral substances in order to effect their purification and crys- 
tallization. 

The period when the molecules of society seem to have 
begun to combine anew, is generally assigned by historians 
to the eleventh century, when feudalism had become sys- 
tematized into something analogous to general government, 
100 



GOD'S TRUCE. 101 

and the power of the Church was especially manifesting 
itself; and was recognised to such an extent that it was 
able to establish throughout nearly all Europe a period 
known as " God's Truce," when warfare, plunder, and 
bloodshed were forbidden from sunset on Wednesday to 
sunrise on Monday ; and " during the Christmas holy days 
and Lent no new defences were to be erected, nor old ones 
repaired. But this was not all. The provisions made for 
the protection of the labourer and for the produce of labour 
were far more characteristic of the dawning of a new era. 
Peasants in hostile territories were not to be injured or 
confined; the tools of agriculture, the hay and the grain 
stacks and the cattle, were all taken under the protection 
of the Church; and if seized, it must be for use and not 
for destruction. He that violated this truce was placed 
under censure of ecclesiastical power." From this period, 
therefore, it is only practicable to take up anew the thread 
of history, and attempt to resume the relation of some of 
the most instructive incidents that have since character- 
ized the attempts of governments to defray their expendi- 
tures by levies upon the persons and property of their sub- 
jects or citizens. Before, however, so doing, the following 
historical facts may properly find a place. 

How the Druids collected Revenue. — An annual 
payment in the nature of a tax was exacted by the ancient 
Druids from every family for the benefit of the priests 
of the temple in the district in which the family lived. 
The families were obliged, under penalty of an ecclesiastical 
curse, to* extinguish their fires on the last evening of Octo- 
ber, and attend at the temple with a prescribed annual 
payment. This being made, they were entitled to receive, 
on the first day of November, some of the sacred fire from 
the altar, to rekindle the fires of their houses; and their 
neighbours were also forbidden, under a similar penalty, 
in any way to assist them. The result was, that delinquent 
taxpayers found themselves not only interdicted from the 
society of their fellow-men and from justice, the usual 
sequence of ecclesiastical excommunication, but also from 
the use of fire during the approaching winter.* This 

* Toland's Critical History of the Celtic Religion and Learning, 
containing an Account of the Druids, p. 105. 



102 THE THEORY AND PRACTICE OF TAXATION. 

expedient for collecting a revenue was referred to by the 
British Chancellor of the Exchequer, in a speech in Par- 
liament in 1871, in connection with a proposal to tax 
matches ; and the motto, Ex luce lucellum, was proposed 
to be inscribed on match boxes in case the tax was 
enacted.* 

Mediaeval System of Land Tenure. — Among the 
nations that succeeded to the sovereignty of Home, the title 
and ownership of land were regarded, as they are to-day in 
China, and in England and other European countries, as 
inhering primarily to the sovereign or chief of the state; 
and when partitioned among his nobles or chiefs, were held 
by them as it was termed on " tenure " ; that is, on condi- 
tion of performing certain services — mainly military, or 
the payment of a tribute — in the nature of rent. These 
conditions were ratified by oath; and the chiefs could 
only sublet, to their serfs or inferiors, on terms consistent 
with their own tenure. 

Large domains were also set apart for the exclusive 
use of the sovereign f — both in his public and private ca- 
pacity — the state and the sovereign being one and the 
same; and from the revenues thus accruing, and various 
fees and feudal incidents, the monarch, or feudal lord, was 
expected to defray all the expenses of the state, both public 
and private. Thus, the annual revenue of William the 
Conqueror is estimated to have been £400,000 ; which, tak- 
ing into consideration that the pound at that time con- 
tained three times the weight of silver that it now does, and 
that silver had a comparatively great purchasing power, 
must have been equivalent to at least four or five millions 
of present money; and of the public expenditures of these 
ages it is important to note that there were very few that 

* Dowell, History of Taxation in England, vol. ii, p. 367. 

t The royal demesne (right of ownership) under the Norman 
kings was at one time of vast extent, comprising, according to 
Domesday Book, no less than fourteen hundred and twenty-two 
manors or lordships, besides farms and lands. It was divided into 
(1) forest; (2) land held by rural tenants; (3) royal cities, 
burghs, and towns. The first formed the king's hunting ground, 
and afforded supplies of venison, etc., for the royal table; the 
second supplied the king's table in other respects; the third was 
mainly the source of contributions for the discharge of the king's 
debts. 



REVENUE FEOM DOMAINS. 103 

represented the bulk of the expenditures of modern govern- 
ments. 

Thus, for example, education was mainly confined to 
the clergy and the Church; and was efficiently supported 
by the produce of their own estates, or by tithes levied on 
the estates of others. There were few roads, and the labour 
of the serfs or peasants for a few days, before or after 
harvest, sufficed to keep in passable condition such as were 
needed to meet the demands of a very limited intercourse 
and commerce between different sections of the country. 
The administration of justice was held to be the perquisite 
of the lords or chiefs holding their estates direct from the 
crown, and, in place of being an expense, became through 
abuse and corruption a source of emolument. The stand- 
ing army, which more than any one agency has tended 
to the impoverishment of modern Europe, could hardly 
be said to have then existed; the tenants in chief of 
the crown supporting the sovereign whenever he took 
the field with a body of retainers, armed and maintained 
in a large degree at their own expense. The necessity 
of taxes in the ordinary sense was, therefore, by these 
conditions entirely superseded; and if at any time there 
was a deficiency of revenue from the crown estates and 
fees, other sources of revenue were resorted to in prefer- 
ence to anything that could by any possibility be regarded 
as taxes. 

Numerous old-time writers of authority — Montesquieu 
among the number — might be cited in support of what was 
then regarded as an eminently sound principle, that gov- 
ernments ought to be supported from revenues derived 
from the public domains, and that taxation should be re- 
sorted to as rarely as possible; because, as one of them 
expressed it, " one enters into civil society to protect one's 
property, and not to have it taken away from him." It 
is also interesting to note in this connection the tendency 
at the present time to go back to this old doctrine, and 
for states and municipalities to derive their revenues from 
other sources than taxation — as from the granting of 
franchises for railways, telegraphs, telephones, gas supply, 
lotteries, etc., on condition of participation in profits on 
gross receipts. Thus, the present net profit on the German 
state railways is understood to pay one third of the interest 



104 THE THEORY AND PRACTICE OP TAXATION. 

on the public debt of Germany. Nearly all the Continental 
states of Europe derive a considerable portion of their 
needed revenues from the profits of their domains and 
forests — Prussia to the extent of about $11,000,000 per 
annum; France, $5,500,000; Hungary, $3,000,000, and 
the like. The city of Paris derives about twenty per cent 
of its revenue from participation in the operation of fran- 
chises and income from productive property. In Berlin 
eighteen per cent of all the municipal expenses are reported 
as derived from the public gas supply. In Illinois the State 
expenses are mainly defrayed from the State's share of 
the annual profits of the Illinois Central Eailroad; and 
in Louisiana also, the State formerly and until recently 
has participated in the profits of an authorized State lot- 
tery. If the ideas of Mr. Henry George, of a single tax on 
land, should prevail, and if such a tax does not diffuse 
itself, then the entire land of the country would in the 
course of time become the property of the state exclusively ; 
and the old principle that a state should be supported from 
its own landed resources and property would be reasserted 
and established. 

The following were some of the sources of revenue, other 
than what were assumed to be taxes, that were resorted to 
in mediaeval times to make good any deficiency of income 
which the crown, as representing the state, derived from 
its special properties and privileges; and a reference to 
which is important, by reason of the flood of light they 
shed upon the concurrent social condition of the masses, 
and the utter disregard of their rulers of anything akin 
to justice in their administration of government. One of 
the most notable of these sources was the Jews, who dur- 
ing the middle ages had no rights of citizenship in Chris- 
tianized Europe, and were held, in respect to their persons, 
goods, wives and children, at the absolute disposal of the 
chief of the state, to be taxed and despoiled by him at his 
pleasure. This utilization of the Jews as sources of revenue 
was far more thoroughly and systematically carried out in 
England than in any other country. " They were, in fact, 
the private property of the king ; living instruments of his 
revenue; carefully protected by his government, unless in 
cases where exceptional necessity on his part or obstinacy 
on theirs made it expedient to bear upon them with un- 



PLUNDER OF THE JEWS. 105 

usual weight ; * not serfs bound to the soil, but slaves of 
the highest value, to whom to allow free action- in the 
acquisition of wealth was the needful condition of reap- 
ing the fruit of their labour. There is a writ of Henry III 
in which, in payment of a debt to his brother Eichard of 
Cornwall, he assigns and makes over to him " all my Jews 
of England." f 

William Eufus (William II of England) actually for- 
bade the conversion of a Jew to the Christian faith. " It 
was a poor exchange," he said, " that would rid him of a 
valuable property and give him only a subject." 

Under Edward I of England the Jews were plundered 
and amerced to such an extent that it is estimated that 
they paid over one tenth of the entire revenue of the crown. 

An explanation of the apparently anomalous circum- 
stance that the Jews, although deprived of all civil rights 
and debarred from following most occupations, were able 
to be plundered to such an extent, is found in the fact 
that they were the " royal usurers," and under the king's 
protection spoliated through extreme usurious interest the 
Norman barons, who were always in want of money, and 
were not the men to readily tolerate " benevolences," or any 
other form of direct taxation for supplying the king with 
money necessary for the support of the government. So 
that when the king plundered the Jewish money lenders, 
he in reality obtained indirectly the money he needed from 
his barons, with far less odium and more profit than if he 
had proceeded against them indirectly. 

Very curiously, this mediaeval idea of regarding the 
Jews as a permanent, legitimate, and desirable source of 
revenue for the state, continued to find favour in England 
as recently as the reign of William and Mary, or in 1689; 
when, money being needed to prosecute the war with 
France, it was seriously proposed to exact, under the sem- 



* Such a case of urgent necessity or inexcusable obstinacy must 
have been assumed as existing by King John, of whom it is re- 
lated that on one occasion he demanded the sum of ten thousand 
marks (thirty thousand dollars) of a Jew at Bristol, and on his 
refusal to pay, ordered one of his teeth to be drawn every day 
until he should comply. The Jew, it is chronicled, lost seven teeth 
and then paid the sum required of him. 

t Oxford Essays. By J. Bridges, Fellow of Oriel. 
8 



106 THE THEORY AND PRACTICE OF TAXATION, 

blance of taxation, a hundred thousand pounds from the 
Jews, and the proposition was at first favourably received 
by the House of Commons. " The Jews, however, presented 
a petition to Parliament in which they declared that they 
could not afford to pay such a sum, and that they would 
rather leave the kingdom than stay there and be ruined; 
and after some discussion the Jew tax was abandoned." 
For, as Macaulay expresses it, " Enlightened politicians 
could not but perceive that special taxation, laid on a small 
class which happens to be rich, unpopular, and defence- 
less, is really confiscation, and must ultimately impoverish 
rather than enrich the state." * 

It is hardly necessary to point out that ill treatment 
of the Jews has not been confined to English rulers and 
people. In every country or state of Christendom they have 
been subjected to arbitrary, unequal, and unjust exactions, 
deprived of ordinary political privileges, and driven as 
homeless wanderers from cities which their presence and 
their purses had enriched. And that this race antagonism 
continues to be perpetuated to the present day, is demon- 
strated by their recent and virtual expulsion from Eussia; 
and even in the United States (where it might least be 
expected) by a vulgar and brutal denunciation by a mem- 
ber of the Federal Senate of the chief executive officials of 
the country, for the assumed reason that they had entered 
into a fiscal correspondence with an Englishman of Jew- 
ish descent, whom England had admitted to a seat in her 
Parliament, and whose whole life had been characterized 
by strict integrity, courtesy to all, and large benevolence. 

Another extraordinary source of revenue to the crown 
in feudal times was the forfeiture of lands and estates for 
offences ; and of the immense sums thus obtained, some idea 
may be formed from the circumstance, that up to the time 
of Elizabeth it has been estimated that nearly all the land 
in England had at some time fallen to the crown under 
the law of forfeitures. Other devices for the raising of 
revenue which were very productive, were fines for the 
alienation (legal conveyance) of land, which were exacted 
oftentimes to the extent of one third of their yearly value, 
whenever the tenant found it necessary to make over his 

* Macaulay's History of England, vol. iii, chap. xv. 



RIGHT OF ROYAL FISH. * 107 

land to another; and from the sale of titles, which even 
as late as 1626, under Charles I, afforded considerable reve- 
nues. The right of marriage was subject (at least in the 
case of nobles and gentry) to the consent of the crown; 
and in some instances large sums were paid for the privi- 
lege ; Simon de Montf ort paying Henry III a sum, equiva- 
lent to five hundred thousand dollars at present, for per- 
mission to control the marriage of the heir of Gilbert 
d'Unfrankville. Mr. Dowell, in his History of Taxation in 
England, quotes the following as among one of the " fiscal 
curiosities " to be found on the Eolls of the Exchequer 
during the early Norman period : " Ralph Bardolph fines 
in five marks for leave to arise from his infirmity. The 
Bishop of Winchester owes a tonell of good wine for not 
reminding the king (John) about a girdle for the Countess 
of Albemarle; and Robert de Yaux fines in five of the 
best palfreys, that the same king would hold his tongue 
about the wife of Henry Pinel." * 

Another branch of the ancient revenues of the English 
crown worthy of special notice from its singular recog- 
nition within a comparatively recent period, was the right 
to u royal fish," meaning thereby the whale and the stur- 
geon, when the same were either cast ashore or caught near 
the coast ; and which were originally acquired by the crown 
on the assumption that the sovereign guarded and protected 
the seas from pirates and robbers. This perquisite had 
so long been in abeyance that its sanction by law was hardly 
recognised in 1850, when the Duke of Wellington, as Lord 
Warden of the Cinque Ports, claimed and exacted the 
price — fifty pounds — of the carcass of a whale brought 
ashore and sold by certain boatmen on the coast of Kent. 
A point of contention was made by the boatmen, that, 
since the law was enacted, natural science had proved that 
the whale was not a fish; but the duke insisted upon his 
right under the letter of the law of compact with his office 
of warden — i. e., to protect the seas — as representative of 
the sovereign, and maintained it. He, however, subse- 
quently practically admitted the lack of any moral founda- 
tion for his claim by dividing the price, after it had been 
formally paid him, with the boatmen. 

* Dowell, vol. i, p. 28. 



108 THE THEORY AND PRACTICE OP TAXATION. 

Taxation in England. — Previous to the reign of 
Henry II of England (1154), the "tenure" or holding 
of lands from the crown required the personal attendance, 
at his own expense, of every tenant — knight or baron — 
with a certain number of retainers, upon the king in arms, 
for a period of forty days in each year; and failure to 
attend, or render the quota of men required by the tenure, 
would have involved a forfeiture of the tenant's lands for 
nonperformance of duty. Such a military system, how- 
ever sufficient for home protection or border warfare, proved 
ill adapted to foreign wars, which in the case of France 
were for a long period almost continuous; inasmuch as in 
those days of slow travelling a forty days' service upon a 
distant expedition would have been of little account. For 
what could be more inconvenient for the leader of an army 
than to be under the necessity, on the expiration of the 
forty days, either to cut short the campaign, or purchase, 
by payments or promises, the continued service of his best 
soldiers? To overcome this difficulty a new system was 
arranged, it is said, by Thomas a Becket, which marked 
an important era in English taxation; whereby the king, 
in lieu of personal service by his barons and their retainers, 
agreed to substitute a tax called " scutage" or shield tax ; 
which, as levied at the rate of ten marks (£1 6s. Sd.) on 
every estate held by tenure, of the annual value of twenty 
pounds, was a land tax, payable in money, which before 
that period had not been definitely recognised. And thus 
it was that the king practically disarmed the feudal power 
by accepting money from the knights in place of armed 
service, and at the same time greatly strengthened his own 
power; as with the money thus raised he created a per- 
manent and subservient army of mercenaries — a process 
which Michelet, the French historian, has characterized as 
a provision by the nobles of a bit and bridle for their own 
restraint.* 



*The reign of this English king — Henry II — is also signalized 
by an organization of the royal (state) revenue system which in 
some of its features has continued to the present time. Under it 
the management and general superintendence of the royal revenues 
were intrusted to certain officers of the king's household, who con- 
stituted the " Court of the Exchequer," so called from the checkered 
cloth laid upon the table upon which the tax collectors or treas- 



ORIGIN OF PARLIAMENTS. 109 

Historians can find no evidence that the right of the 
English kings to levy taxes was in any case made contingent 
on any formal grant of any national council until toward 
the close of the reign of Eichard II (1190) ; * and we have 
a statement from the historian Hallam that, previous to 
that time, the system of extortion practised by the Nor- 
man kings upon their English subjects was " what we 
should expect to find among Eastern slaves." 

Progressive civilization and the necessity for larger 
revenues than the domains and perquisites of the crown 
could supply to meet the expenditures of continued wars 
and the maintenance of standing armies, gradually, how- 
ever, broke down (as has been before pointed out) the 
feudal system for defraying the expenses of the govern- 
ment; and the sovereigns were compelled to petition their 
tenants in chief, or the representatives of the great estates 
of their realms, to meet in assembly and co-operate with 
the crown in raising revenue by a more or less general sys- 
tem of forced contributions upon the persons and property 
of the people. And in this necessity is to be found the 
origin of the modern parliaments or states general; and 
also the inception of the modern system of taxation through 



urers told out the king's money; and the chief financial officer 
of the British Government at the present time is designated by the 
title of " Chancellor of the Exchequer." The payments when made 
were entered into an account book, and from this transferred to a 
strip of parchment; which last was sent through a pipelike open- 
ing into a room specially provided, and called a " tally count," 
where a " tally " was made of it. This tally was a piece of dry 
wood on which "the cutter of the tallies" had to cut notches 
corresponding to the sum paid, while the " writer of the tally " 
wrote the sum down on both sides of the wood in figures. Ac- 
cording to the length of the incision, one notch denoted £1,000; 
another £100; £20; 20s.; Is.; and so on. The chamberlain then 
split the notched stick down the middle in such a manner that 
each half contained the written sums and the incised notches. 
The two matching parts thus split asunder were called " tally " 
and "counter tally," or "tally" and "foil" (folium). The one 
was retained by the chamberlain, the other was kept by the payer 
as a receipt and proof to be produced to the account department 
of the exchequer. This curious system of receipts was maintained 
in force until 1783; and it was through the burning, with a view 
to getting rid of an accumulation of these tally sticks, that the 
old House of Parliament in London was burned in 1834. 
* Stubbs, Constitutional History of England, vol. i, p. 577. 



HO THE THEORY AND PRACTICE OP TAXATION. 

the representatives of the people. And the manner in 
which the great principle that representation should ac- 
company taxation began to find a place in English legal 
or economic experience, through what was clearly a process 
of evolution, was undoubtedly as follows : 

Under the Saxon and, for a lengthened period, also 
under the Norman kings, the revenues of the crown (as 
before shown) were mainly derived from taxes on land, 
which were paid in kind (produce), and what, as the hold- 
ers of land were regarded as tenants of the crown, were in 
the nature of rents.* But when, in order to enlarge the 
basis of revenue, personal property, in the form of mov- 
ables or income, was brought under contribution, the situ- 
ation became different; inasmuch as the titles of all such 
property not being primarily derived from the king, the 
consent of its owners to an official inquisition, necessary 
for proper valuation and assessment, was implied, and 
naturally was not willingly granted. And the great re- 
ligious nouses and orders, who in the main were the prin- 
cipal owners at this time of such property and were all- 
powerful, especially insisted that this consent should be 
recognised as a prerequisite to assessment; and, in at least 
one instance, re-enforced their position by an interdict from 
the Pope. 

The successive steps, also, by which this great principle 
became recognised and incorporated into general practice 
have also been clearly worked out by historians. Thus, 
in 1181, under the reign of Henry II, each freeman was 
required to equip himself (for war) according to his means ; 
and to determine what his means were, or his liability for 
taxation in respect to other than landed property — namely, 
chattels and income — four or six lawful men of his parish 
were chosen to determine and declare under oath the extent 
of his personal liability. In the next reign, that of Richard 



* Rents (taxes) paid in kind continued in force in England after 
the Conquest, and certainly down to the reign of Henry I. In- 
deed, by reason of the scarcity of money, there was practically 
no other method of payment. But at the same time the collectors 
of the king's revenue, in the settlements of their accounts, were 
accustomed to reckon the value of produce in money at an estab- 
lished ratio: as, an ox at 1.5?.; a sheep at 4d. ; so many measures 
of corn at so much, and the like. 



TAXES AND ENGLISH LIBERTY. HI 

I, this new principle of jury assessment was applied in a 
general way to the assessment of lands as well as chattels ; 
and from thence the representative principle in taxation 
begins to ascend through successive stages, until it becomes 
established and recognised as the highest function of the 
British and all other essentially free governments.* 

The abandonment, furthermore, of the right on the 
part of the sovereign to make arbitrary exactions in respect 
to personal property, and the assumption by a class of 
privileged subordinates — i. e., legislators — of the right to 
vote or deny supplies to the king or state, and for the 
attainment of which results the English clergy of the thir- 
teenth century led the way, marks also the dawn of con- 
stitutional or free government. All authorities are agreed, 
that on the clause in the Magna Charta of 1215 respecting 
the taxing power, is based all that has since been achieved 
in respect to English liberty. By it the king (John) was 
allowed to reserve for himself but three feudal aids, or 
rights, for extraordinary money allowances from the state, 
which very curiously have never been alienated from the 
English crown by any subsequent legislative enactment: 

* It is, however, worthy of note that the only time when this 
subject appears to have prominently attracted the attention of the 
British Parliament and occasioned debate was in connection with 
the imposition of taxes, without representation, on the British 
colonies in North America, and which assumption of right on the 
part of the crown to thus act, subsequently led to the American 
Revolution. The question at issue before Parliament was, Had the 
state the right of taxing the colonies under existing circumstances, 
in default of representation of the taxpayers? The colonists did 
not deny the right of Great Britain to tax them; but they did 
hold that for the people of Great Britain to appropriate any part 
of the property without their consent was neither reasonable nor 
consistent with the British Constitution. And in the great debate 
in Parliament on this subject, in 1764, Mr. Pitt sustained the 
position of the colonists; and Lord Camden, who followed, said 
that " taxation and representation were inseparable," and that a 
blade of grass growing in the most obscure part of the kingdom 
could not rightfully be taxed without the consent of its proprietor. 

Recent historical investigations have, however, shown (as be- 
fore pointed out, chapter ii) that the grievance alleged and com- 
plained of by the American colonists was not peculiar to them, 
but was shared by the people of the mother country to such an 
extent that at the time of the colonial revolt not one tenth of 
them were allowed to participate by vote in the election of mem- 
bers of Parliament. 



112 THE THEORY AND PRACTICE OF TAXATION. 

namely, to ransom the king in the case of his capture by 
an enemy ; to defray the expenses of the knighthood of his 
eldest son; and third, on account of expenses incident to 
the marriage of his eldest daughter. In all other respects 
the charter provides that " no scutage " — by which is under- 
stood a land tax in commutation for personal military 
service — " or aid shall be imposed in our realm, save by 
the Common Council of our realm" ; and this provision 
of the Great Charter was more explicitly reaffirmed and 
embodied in the form of law by a Parliament in 1297, 
which enacted that no tax should be levied by the king 
without the consent of the knights, burgesses, and citizens 
in Parliament assembled. 

Again, in the earlier periods of English history, and 
probably also in the history of the other states of Europe, 
when the revenues from the property, fees, and perquisites 
of the crown, supplemented as they were from time to time 
by special parliamentary grants, benevolences, and sub- 
sidies, and the plunder of special classes — as the Jews — 
were found inconvenient and unreliable, and were replaced 
by more regular systems of contribution, the idea of taxa- 
tion was, as centuries before in Rome, simply to obtain the 
necessary revenue, without much regard to the incidence 
of the tax or the interest of the producer, consumer, or 
trader. The end was alone considered, and not the means ; 
and this policy, pervading all schemes and experiences of 
taxation, was then, as it ever has been, the most fertile 
source of bad taxes. The objects from which contributions 
at the period under consideration could be obtained were 
almost exclusively tangible and readily visible, as lands, 
hearths (representing nouses), cattle, slaves or serfs, and 
the crudest of agricultural products. But as trade, or the 
business of exchanging, increased, it soon came to be looked 
upon as a proper subject for exaction. Customs, or taxes 
upon trade, were accordingly very early established, and at 
first were probably confined to domestic or internal trade. 
But with the rise and growth of foreign commerce the 
practice very naturally extended to foreign trade, and the 
terms " customs " and " duties/' which had an antecedent 
origin and meaning, eventually became restricted in their 
application to " taxes " or " exactions " on exports and im- 
ports. But yet so slowly did the customs in this sense 



CUSTOMS AND TOLLS. 113 

become an important source of English revenue, that the 
entire amount collected in 1603 was but £127,000, or but 
little in excess of $630,000. Such taxes at the outset were 
furthermore held to be the king's private or personal dues, 
to be levied by him independently of any statute, according 
to his discretion, or, rather, according to his necessities; 
and it was not until the reign of Edward I that Parlia- 
ment undertook to interfere with what had been considered 
an hereditary right of the crown, by providing in 1275 that 
for the purpose of correcting irregular seizures and exac- 
tions, a limitation should be established on the amount of 
duty that the king might take on the exports of wool and 
leather; and the duties thus regulated by statute on these 
two articles are regarded as the first legal foundation of 
the English customs revenue. But before the close of the 
reign of Edward III, or in 1353, the exclusive right of 
Parliament to authorize or control every form of indirect 
taxation was fully established, and for the time fully exer- 
cised; and the right thus achieved by the representatives 
of the people of participating in the levy of indirect or cus- 
toms taxation, also necessarily drew with it the right to 
participate in general legislation, or upon all subjects which 
Parliament might deem proper. 

It is also interesting to recall in connection with this 
subject, that when the old English kings began to levy tolls 
on ships entering into harbours, in common with tolls on 
transportation by roads and navigable streams, the tax was 
on the ship directly, and not specifically upon its contents. 
And in early charters instances occur of grants to individ- 
uals or monasteries of an exemption from toll for one ship 
of burden; and in the event of the destruction of the par- 
ticular ship, the privilege was extended to another ship. 
But with such tolls or taxes once established, the idea soon 
developed that like forms of exaction might be made to 
serve a commercial purpose as well as produce revenue; 
and, as might have been expected, they therefore early be- 
came instrumentalities for fiscal oppression; and, with a 
view of advancing the interests of English merchants, or of 
protecting native industries, they were especially directed 
against the commerce of foreigners. And while the crown, 
as early as 1275, was deprived of much of its arbitrary 
power of levying customs for revenue, its prerogative of 



114: THE THEORY AND PRACTICE OF TAXATION. 

restraining trade and imposing onerous burdens on ex- 
changes with foreigners remained not only undisturbed 
but undisputed. Foreign merchants, or trading companies, 
frequently purchased immunity from such exactions; but 
yet, according to Mr. Hall, in his History of the English 
" Customs/' " to the ' custos ' of the ports, to the riverside 
baron, to the wayside outlaw and the town apprentice, the 
Lombard or Flemish peddler or merchant appeared as fair 
game for violence and extortion of every kind." And in 
the earlier records of England's customs experience, their 
oppressive features are of higher interest than their reve- 
nue or fiscal characteristics. English producers and traders, 
furthermore, having secured immunity from arbitrary taxa- 
tion themselves, were quite willing to see this instrument 
of restraint and oppression turned against their foreign 
competitors; and, accordingly, during the whole of the 
sixteenth, seventeenth, and eighteenth centuries, and the 
first quarter of the nineteenth century, the whole commer- 
cial policy of England was based on the theory of the so- 
called "mercantile system"; the fundamental principle 
of which was that commerce could benefit one country only 
to the extent that it injured another; and that it was the 
part of wisdom always to secure a favourable balance of 
trade by selling as much and buying as little as possible, 
and receiving pay for what was sold, not in other useful 
products, but in gold. 

But notwithstanding the early restrictions imposed by 
Parliament on the power of the crown to appropriate the 
property of the people for its support, arbitrary exactions 
in the name of taxation continued to characterize the rule 
of all the English monarchs down to the time of Charles 
I, when the claim of the king to a divine right to take 
taxes from subjects, with or without their consent, was 
settled by the dethronement and execution of the monarch 
and the establishment of the Commonwealth; and ever 
since then the grants of an annual Parliament have been 
a prerequisite to any lawful expenditure for the main- 
tenance of the English state. 

To the necessities of the Long Parliament, during its 
contest with the crown, and when the receipts of revenue 
from former sources were interrupted, we owe the perma- 
nent incorporation of the so-called excise taxes into the 



LAND TAX AND AMERICA. 115 

tax system of England. Another most novel contrivance 
of this period for the raising of revenue was the so-called 
weekly impost of a single meal ; every citizen being required 
to retrench one meal per week and pay an amount repre- 
senting the saving, in the form of money, into the public 
treasury; a tax that yielded in six years £608,400, or more 
than $3,000,000 ; an aggregate that represented a far larger 
purchasing power than the same amount would at present. 

During the nineteen years that elapsed from the begin- 
ning of the English Eevolution to the restoration of the 
monarchy under Charles II, the average annual expendi- 
tures of the Commonwealth were about seven times greater 
than those of the preceding royal Government ; and as un- 
lawful taxation was the prime cause of the establishment 
of the Commonwealth, so excessive taxation furnished the 
prime cause of popular rejoicing when the Commonwealth 
was got rid of. 

A circumstance of no little importance, but which some 
historians have overlooked, is, that the revolt of the Ameri- 
can colonies and their separation from Great Britain were 
in the first instance due to an effort on the part of the 
landholders of Great Britain to transfer from themselves 
to the people an ever-increasing portion of the expenses 
of the Government. But such was the fact. In 1767 the 
British Parliament, which was mainly composed of land- 
holders, reduced the previously existing land tax to the 
extent of about half a million pounds per annum; and it 
was for the purpose of making up a resulting deficiency 
of receipts to the British treasury, that the Chancellor of 
the Exchequer of George III resorted to the taxation of 
tea, glass, and other articles imported into the American 
colonies, as well as the requirement for the use of stamps 
on the paper instrumentalities used by the Americans, and 
the payment for which the colonists resisted. 

Finally, a feature of special importance in connection 
with the history of English tax experiences, one often over- 
looked in historical essays and discussions, but which ought 
to command the attention of all interested in the origin of 
the structure and diversities of governments, is the demon- 
stration it affords of the close connection between taxa- 
tion and popular liberty. Take up the history of any 
people, state, or nation that has fought its way, like Eng- 



116 THE THEORY AND PRACTICE OF TAXATION. 

land, out of despotism into liberty, and what are the trans- 
actions that most significantly mark and constitute its 
progress? The story is substantially the same in every 
case. First, a government of might supported by arbitrary 
exactions from persons and property — tribute, taille, 
scutage, gabelle, corvee, escheats, octroi, vingtieme, customs 
duties, subsidies, benevolences, and the like — levied at the 
will or caprice of an absolute and despotic chief or mon- 
arch, and without any consultation with or assent of the 
governed. Then, in some hour of royal adversity or need, 
the monarch appeals for aid to the more powerful of his 
subjects — lords and nobles — who, in turn, taking advan- 
tage of the situation, vote or grant it, in consideration of 
the concession of some " Magna Charta," limiting in a 
measure the sphere of exactions on the part of the mon- 
arch, or at least securing to a few of his privileged subordi- 
nates a voice in regulating and legalizing the same. Later 
comes the struggle between the privileged few and the 
unprivileged many, and sooner or later, by peaceful political 
progress, or by violence and revolution, the privileged class 
ceases to be a separate potential element of the state, and 
thence passes to the people the sole right to determine, 
through their chosen representatives, what grants of sup- 
plies shall be made for the support of the state, and how 
the burden of taxation which they entail shall be dis- 
tributed. And then, if further progress is to be achieved, 
to the end that in exercising the great power of appro- 
priating private property for defraying the expenses of 
government, no more be taken than is necessary ; that none 
shall be assessed unequally ; that the greatest freedom may 
be secured for production and distribution, and the greatest 
restrictions placed on monopolies, there must be, through 
study and investigation, such an improvement and remodel- 
ling of all existing systems of taxation as will completely 
eliminate from them all practices that rest upon no better 
basis than old prejudices and narrow, selfish interests, and 
make them conformable to principles and conditions which, 
when presented abstractly, will command almost universal 
assent. 



CHAPTER V. 

TAXATION IN FRANCE AND MEXICO. 

No chapter in history is more replete with interest and 
instruction than that which exhibits the system for exact- 
ing contributions for the support of the state which char- 
acterized the fiscal policy and administration of France 
during the seventeenth and eighteenth centuries, and which 
is now acknowledged to have been mainly instrumental in 
bringing on the memorable Revolution in the closing years 
of the latter century. 

Feudalism in France, previous to 1789, had come to 
find its expression almost exclusively in the claims on the 
part of the various and multiplied representatives of au- 
thority — nobility and clergy — to regulate taxation, in re- 
spect to both imposition and exemption. 

The kingdom was divided into departments, with an 
officer called an " intendant " or " farmer-general " (fer- 
mier general} at the head of each, into whose hands the 
whole power of the crown in respect to revenue matters was 
delegated. Each department was then subdivided, and 
at the head of each of these subdivisions a deputy was 
appointed by the intendant. The rolls or lists of the vari- 
ous crown taxes, for polls, service, incomes, " proportions," 
and the like, were distributed by the intendants to their 
deputies, who had the power to exempt, change, add to, 
or diminish the list at their pleasure. 

It must be obvious, that the friends of the intendant 
and of all his deputies, and the friends of their friends, 
might be favoured at the expense of the helpless masses; 
and that great noblemen in favour at the court, to whom 
the intendant himself would naturally look for protection, 
would especially find little difficulty in transferring most 
or all of the burden of tribute rightfully due from them 

117 



118 THE THEORY AND PRACTICE OF TAXATION. 

to the state, to others who had no such influence. The 
result was that taxation in France at the period mentioned 
had become in the highest degree arbitrary, and a scarcely 
disguised form of plunder; and the methods of assessment 
were so crude and defective that it is probable that the state 
never received fifty per cent of the amount collected, and 
in many cases no more than forty or thirty per cent. The 
expenditures of the revenues received were, moreover, char- 
acterized by so little system as to render it difficult to exer- 
cise any efficient check upon them, or to ascertain accurately 
at any one time (as was especially the case during the latter 
third of the eighteenth century) the true state of the 
national exchequer ; all of which fostered indefensible waste 
and extravagance. At the death of Louis XV in 1774, the 
annual expenditure of the king and his household probably 
amounted to one eighth of the entire revenue of the state,* 
and the total indebtedness of the state in 1789, the year 
of the commencement of the Eevolution, was estimated as 
being in excess of $1,000,000,000, carrying an annual in- 
terest of $206,000,000; and it is to be remembered that 
these figures must be at least doubled to represent the cor- 
responding sums of the present day. All this indebtedness, 
and all that was subsequently incurred through the issue 
of irredeemable assignats " (paper or fiat money), was 
ultimately, through one means or another, entirely repu- 
diated. 

In the collection of levies the inquisitorial, infinitesimal 
assessment and dooming penalty system, the like of which 
still finds favour in Massachusetts, was carried out to per- 
fection; and the only rule of practice which in different 
districts could prefer any claim to uniformity, was the 
rule of inequality of assessment, and harshness and cruelty 
in collection. Arthur Young, an English gentleman of 
culture and keen powers of observation, who travelled in 
France in 1787-'89, states, in recording the above experi- 
ences, that " he shuddered at the oppression of which he 
became cognizant." 

One of the chief sources of revenue to the state was 

* There were seventy-five officers connected with the king's 
chapel alone; forty-eight physicians, surgeons, and apothecaries 
attached to his person; and three hundred and eighty-three men 
and one hundred and thirty-three boys employed for his table. 



THE TAILLE IN FRANCE. 119 

from an exaction known as the taille* which was mainly 
in the nature of a direct tax on land, though in some prov- 
inces it was a levy on both polls and land. The history of 
this exaction has been carefully investigated and is not a 
little interesting. It originated in the early feudal period, 
and was imposed on persons originally bondsmen, or on 
persons who held in "farm," or lease, or resided on the 
lands of a noble or suzerain, and from which the proprie- 
tors or suzerains of the land were exempt. And as no 
vassal could at will divest himself of servitude or allegiance 
to his lord or suzerain, so the obligation to pay tribute 
(taxes?) always remained upon him as a personal servitude, 
wherever he might be. In other words, the condition of 
the masses in France during the middle ages was not un- 
like the condition of the slaves in the United States previous 
to emancipation. These had property in their possession, 
and spoke of themselves as owners of property, but in 
reality their property followed the condition of the servi- 
tude of their persons, and both persons and property be- 
longed equally to the masters. The taille, furthermore, as 
a badge of servitude, was supposed to dishonour whoever 
was subject to it, and degrade him not only below the rank 
of a gentleman, but of that of a " burgher," or inhabitant 
of a borough or town ; " and no gentleman, or even any 
burgher," writes Adam Smith in 1775, "will submit to 
this degradation." f 

The hardship and injustice of the practical working of 
the taille may be thus illustrated : " In all cases the nobility 
and the clergy were exempt from its payment, as were also 
the holders of a multitude of minor Government offices, 
which, however, did not carry with them any patent of 

* The taille was the equivalent of .the English " tallage." But 
the discretionary power of levying the impost was taken away 
from the English crown and nobility by the provisions of Magna 
Charta. 

f Repulsive and barbarous as was the taille, it is curious to 
note that the principle involved in it still survives and finds recog- 
nition and practice in States claiming a high civilization; as, for 
example, in Massachusetts and Connecticut, where personal prop- 
erty is held to owe a servitude to the State and to be subject to 
taxation by it in virtue of the citizenship or personal domicile of 
its owner, although the property itself may be located beyond 
the territory and jurisdiction of the taxing power. 



120 THE THEORY AND PRACTICE OF TAXATION". 

nobility. These exempt classes, which in the time of 
Louis XIV are believed to have numbered some 300,000 out 
of a total estimated population of 25,000,000 in the king- 
dom, owned about one half of the whole soil of France; 
so that the burden of the tattle, amounting in 1789 to 
110,000,000 livres (francs), fell exclusively on the rural 
classes; especially upon the agricultural interests, which 
it would have been sound policy on the part of the state 
to favour. 

" But the mode in which the tattle was levied still fur- 
ther illustrates its iniquity. The Comptroller-General of 
the Finances, in the first instance, decreed that a certain 
aggregate sum was to be raised, and then two subordinate 
officials and the local landlords in each province and parish 
were left to decide among themselves how the prescribed 
amount was to be exacted from the taxpayers. The com- 
bined forces of jobbery and absolute authority rendered 
its incidence grossly unfair, the poorer localities generally 
paying the larger share, while the richer ones escaped 
lightly. Thus there was brought about a condition of 
things in which the most miserable sections of the com- 
munity were made to feel their inferiority in every relation 
of life. They were humbled in all their feelings, and they 
could not but loathe those whom birth or favouritism had 
placed above them." * 

Besides the tattle, two other forms of direct exaction 
were included in the fiscal policy of France at the period 
under consideration — namely, a so-called capitation tax, 
which was a kind of graduated tax on capital, and from 
the incidence of which there was theoretically no exemp- 
tion; and the vingtieme (one twentieth), instituted by Col- 
bert, which was an income tax, and supposed to be levied 
on every class. Owing, however, to inefficient administra- 
tion, and to the circumstance that the clergy occasionally 
bought exemption for themselves for a term of years by the 
payment of a lump sum, the revenue derived from these 
sources was always much less than it ought to have been, 
the privileged class to a large extent evading assessments. 

The almost complete exemption of the clergy of France 

* The Financial Causes of the French Revolution, By Ferdi- 
nand Rothschild. 



INDIRECT TAXES AND GABELLE. 121 

during the ante-revolutionary period from taxation, where- 
by those who were supposed to preach and practise charity 
were so intent upon securing worldly vantage as to have 
thrown nearly all their duties and responsibilities to the 
state upon the poor, constitutes one of those striking con- 
tradictions which so often confront us in history. 

The indirect taxes were very numerous ; comprising the 
customs, the octroi, the excise, and special taxes on wines, 
cards, tobacco, salt, and on a great variety of manufactured 
products ; and in their collection the arbitrary, inquisitorial, 
infinitesimal, and penalty system was carried out to perfec- 
tion. It was this class of taxes which undoubtedly pressed 
most heavily on the French poor, and from the direct in- 
cidence of which the Church and nobility managed in a 
great degree to escape. Very curiously, also, they consti- 
tuted an inducement to the peasantry to seem poorer than 
perhaps they actually were, and to live in low, thatched 
cottages, without floors or glass in the windows, inasmuch 
as any improvement of their dwellings meant an increase 
of their taxes. Custom duties were levied, not only at 
frontiers of the kingdom, but between every province of 
France. The taille was exacted with military severity. 
" Carriages and carts were stopped on the highway and 
searched by the tax collectors; no private house was safe 
from them by day or by night; and on the slightest sus- 
picion they used the power of arrest that was vested in 
them. Prosecutions for unpaid taxes were carried on with 
the utmost rigor. The clothes of the poor were seized, and 
even their last measure of flour, and the latches on their 
doors. Collectors, accompanied by locksmiths, forced open 
doors and carried away and sold furniture for one quarter 
of its value, the expenses exceeding the amount of the 
tax." — Taine. 

The most vexatious, arbitrary, and extraordinary tax of 
this period was that imposed on salt, and known as the 
" gab ell e " ; and to one who now acquaints himself with 
its history and details it must seem almost inconceivable 
that any country claiming to be civilized ever could have 
had such an experience. In order to effectually secure at 
the outset the payment of this tax, the right to produce 
and sell salt was vested exclusively in the state. By an 
ordinance in 1780, every person over seven years of age was 
9 



122 THE THEORY AND PRACTICE OP TAXATION. 

required to purchase, not at convenience, but on one stated 
day of each year, seven pounds of salt, which in a peasant's 
family of four, according to Taine, entailed an expense 
equal to the average wage receipts of nineteen days' work. 
It was forbidden also to divert a single ounce of the seven 
obligatory pounds to any use but the " pot and the salt 
cellar." If any one failed in these observances he was fined ; 
and he was also fined if he purchased a smaller quantity 
than the law prescribed. To supplement the use of salt 
with water from the ocean, or from saline springs, or to 
water cattle in marshes or other places containing salt, was 
forbidden under severe penalties. In certain departments 
of France it was also made incumbent on officials periodical- 
ly to destroy, often by defilement, all deposits of salt which 
were formed naturally. No retail dealing in salt was per- 
mitted, but Government warehouses were established, often 
at places at considerable distances from towns and villages, 
where their inhabitants were compelled to make their 
purchases. According to a report made by the comptroller- 
general in 1787, the salt tax at that time annually occa- 
sioned " four thousand domiciliary seizures, three thou- 
sand four hundred imprisonments, and five hundred sen- 
tences to flogging, exile, and the galleys." * 

But in addition to the so-called national system, which 
imposed a great variety of taxes upon all persons and prop- 
erty in France which could not through favour procure 
exemption, which exemption embraced practically all the 
nobility, clergy, and gentry, there were a great number of 
taxes peculiar to separate estates or seigniories, but at the 
same time more or less general. Thus, all the various op- 
erations involved in production and consumption were 
made, as far as possible, the occasion for tax assessments. 
The tenants, or vassals, were bound to grind their corn at 
the mill of the seigneur only; to bake their bread exclu- 
sively at his ovens ; to press their grapes and apples exclu- 
sively at his presses ; and for every such industrial conver- 
sion a toll or tithe was collected. One of the memoirs 
touching the condition of the Tiers Etat, as the common 
people were called, published about the time of the meet- 
ing of the National Convention, expresses a hope that pos- 

* Taine, Ancient Regime, pp. 358-362. 



TAXES ON TRANSFERS. 123 

terity may be ignorant that feudal tyranny in Brittany, 
armed with judicial power, did not blush at breaking hand 
mills and selling annually to the miserable people the privi- 
lege of bruising between two stones a measure of buck- 
wheat or barley. 

Movements of persons or property from one town or 
parish to another always involved taxation. If a farmer 
or labourer moved from one parish to another, it was held 
that he could not separate himself from a residence once 
adopted, but remained there for taxation, although he 
might actually and permanently have left it and be pay- 
ing taxes in another place. All movements of property and 
persons were discouraged ; and it not infrequently happened 
that there was grievous famine in some departments of 
France, and a surplus of food at the same time in others 
not very far distant, because of the inability of producers 
in the latter to dispose of an abundant harvest for lack of 
any remunerative market or demand. Every sale or trans- 
fer of property also carried in it a payment to the seignior, 
or lord of the manor, to the extent of one eighth and some- 
times one sixth of the entire equivalent received in consid- 
eration. And it is interesting here to note that this exac- 
tion was recognised and enforced in French Canada until 
the abolition of seigniorial tenure, forty years ago. Arthur 
Young states that at the time he travelled in France, 
1787-^89, the very terms used to designate the taxes im- 
posed on the peasantry were in many instances untrans- 
latable into English; and from a long list of such terms 
as he recorded, very few can be found and denned in any 
ordinary French lexicon.* In order, however, in some 
degree to satisfy curiosity as to the nature of these abomina- 
tions, it may be mentioned that one of the local taxes in 
Brittany, which remained in force down to 1789, and was 
known as the "silence des grenouilles," was a money pay- 

* Of such terms Mr. Young mentions the following as expressive 
of the tortures of the peasantry in Bretagne (Brittany), without 
attempting to define their exact meaning: " Chevauches, quintaines, 
soule, saut de poison, baiser de mariees, chansons, transporte 
d'opuf un cMrette, silence des grenouilles, corvee a misericorde, 
milods, leide, couponage, cartelage, oarage, fonage, marechausse, 
banvin, ban d'aout, trousses, gelinage, civerage, taillabilite, ving- 
tain, sterlage, bordelage, minage, ban de vendanges, droit d'ac- 
capte," etc. 



124 THE THEORY AND PRACTICE OF TAXATION. 

ment in lieu of an ancient feudal obligation incumbent on 
the residents of marshy districts to keep the frogs still, by 
beating the waters, that the lady of the seigneur might not 
be disturbed " when she lies in " ; while another exaction, 
still more outrageous, which was not repealed until the 
French revolutionary convention in 1790 swept it from 
the statute book, was a tax known as cuissage, or " droit 
du seigneur" which was paid to the seignior as a substi- 
tute for his ancient and formerly undisputed right to the 
possession before marriage of the person of every female, 
the daughter of any of his serfs or more dependent vassals.* 
Another relic of old feudalism which prevailed in 
France down to the period of the Eevolution, and which, 
indirectly a tax, was most oppressive and impoverishing 
to the French rural population, was an obligation termed 
the corvee, imposed upon them to keep the main roads of 
the kingdom in repair without being remunerated for their 
labour or for the services of their animals. They were thus 
frequently forced away with their teams from their fields, 
at the demand of any travelling noble or important per- 
sonage in either church or state, and often at a time of 
sowing or harvesting, when they could be least spared ; and 
were occasionally required to travel long distances in order 
to reach their allotted work. While they were thus com- 
pelled to keep the main roads of the kingdom in repair, 
which were generally of little use to them, the local or 
parish roads, on which they were dependent for their com- 
munication with adjacent towns or villages, were allowed 
by the Government to remain neglected. \ For many years 

* This exaction, the reality of which has been called in ques- 
tion, would seem to be a necessary incidence or outcome of slavery 
or serfdom, inasmuch as the condition of slavery implies no rights 
on the part of a slave that the master is bound to respect. Mr. 
Thorold Rogers is authority for the fact that this droit du seigneur 
was recognised under various names, as jambage, merclieta, and 
mantagium, in France in the thirteenth and fifteenth centuries, 
and that fines in recognition and in lieu of this ancient manorial 
right were probably paid in England almost as late as the admin- 
istration of Cromwell. 

t This practice or institution of the corvee was undoubtedly 
of ancient Eastern origin, and until recently existed in Egypt; 
a very considerable part of the labour employed in constructing 
the Suez Canal having been performed, in accordance with the 
orders of the then ruling Khedive, under its conditions. 



VAUBAN'S DIXME ROYALE. 125 

previous to the Kevolution, the institution of the corvee 
"undoubtedly meant to the French peasantry a period every 
year of from twelve to fifteen days of forced labour for the 
construction and repair of roads, for which the nobility, 
clergy, and town merchants contributed not a sou, or an 
hour of work. 

And now comes an exceedingly interesting but little- 
known chapter in French history. There were men of large 
hearts and great intelligence in France during the reign 
of Louis XIV (1643-1715) who were not only keenly ap- 
preciative of the oppressions and sufferings of the French 
people by reason of their horrible system of taxation, but 
also of the certain destructive influence of this system on 
the industry, society, and government of the kingdom.* 
Among these was the celebrated Marshal Vauban, who, 
although a soldier by profession, and holding one of the 
highest offices among the privileged nobility, had made a 
study of the misery of his countrymen, and had discerned 
in a great degree its cause and was seeking for its remedy. 
The knowledge that his office as Marshal of France gave 
him of the necessity for great expenditures — the country 
being almost always at war — and the little hope he had 
that the king would retrench in matters of splendour and 
amusement, left him no other alternative but to try to find 
some method by which the burden of the multitudinous 
taxes imposed for defraying these expenditures might not 
be enormously and unnecessarily augmented by their 
method of taking. He accordingly proposed what was in 
effect a single tax — namely, that the king should annually 
take by one act or payment a royal tithe of a twentieth, or 
not more than a tenth (dixme royale) of all the property 
of each community, or of each person in the kingdom ; and 
that this simple and sole tax, which would suffice for all, 
and which would pass directly into the coffers of the king, 
should be the means by which every other form of tax or 
exaction from the people, with all its complicated, inquisi- 
torial machinery for collection, should be abolished, f 

* During the eighteenth century famine periodically decimated 
the rural population of France, and forty million acres went out 
of cultivation. 

t Vauban proposed to maintain a tax on salt, customs duties 
on imports, and registry duties. 



126 THE THEORY AND PRACTICE OF TAXATION. 

About the same time a lieutenant-general of France — 
one Boisguillebert, of Rouen — took up the investigation of 
the same subject, and published a really learned and pro- 
found book; in which he also proposed a new system of 
taxation, which he claimed would at once relieve the people 
of many taxes, and the state of the necessity of great ex- 
penditure, by providing that the proceeds of every tax 
should* go at once into the treasury of the king, instead 
of enriching first the farmers-general, the finance minis- 
ters, and their deputies. 

The system of Boisguillebert was analogous to that 
proposed by Yauban, with the exception that the former 
advocated the continuance of some taxes on foreign com- 
merce and upon foods, and the latter desired especially to 
abolish most of such forms of taxation. 

Admirable in many respects as were these proposed 
reforms ; clearly based as they undoubtedly were upon what 
are now recognised as sound economic principles, they had 
one great defect: they prescribed a course which, if fol- 
lowed, would have taken away the means of livelihood of a 
very large number of officials. It would have compelled 
them to live at their own expense, instead of at the ex- 
pense of the public. This was enough to insure their fail- 
ure. All the people whose interests, fortunes, and emolu- 
ments were threatened arrayed themselves in opposition; 
for they reasoned truly that place, power, wealth, and social 
position would fly from their grasp if the counsels of Yau- 
ban were to be followed. It is not to be wondered, then, 
that the king listened to the advice of the multitude who 
were privileged to talk with him, rather than to his one 
clear-headed, unselfish, faithful servitor ; or that when Mar- 
shal Yauban presented him with a book embodying and 
explaining his fiscal views and system, he received it with 
a very ill grace. His ministers also, even if they were con- 
trarily disposed, which is not probable, could not do other- 
wise than follow the views of the king, and from that 
moment the splendid services of the marshal, his military 
genius, his virtues, the former affection the king had had 
for him — all were forgotten. He stood in the position of 
one courting the favour of the people, and contemning and 
weakening lawful authority. The circulation of his book 
was forbidden, and all the copies which the state could 



BOISGUILLEBERT AND DESMARETS. 127 

reach were destroyed; while the unhappy marshal, unable 
to survive the loss of the king's favour, or stand up against 
the enmities he had created, soon died of a broken heart. 

His friend Boisguillebert, whom these events ought to 
have made prudent, could not restrain himself, but pub- 
lished a book vindicating Vauban, and answering one of 
the principal objections to his system — namely, the imprac- 
ticability of making any radical changes during .a great 
war — by asking if it was necessary to wait for peace before 
abolishing great abuses. This was a more offensive con- 
temning of authority than Vauban had committed; and 
Boisguillebert was stripped of his functions, severely repri- 
manded, and sent into exile. For this he was in a degree 
recompensed by the acclamations and approbation of the 
people wherever he went. 

The system and abuses which Yauban and Boisguille- 
bert endeavoured to reform accordingly continued; but 
as years went on, and the misfortunes of France accumu- 
lated and culminated in the total defeat of her armies by 
Marlborough, the necessity of larger revenues to meet 
larger expenditures became most urgent; but how to pro- 
vide them was a problem which brought no little embar- 
rassment to Louis XIV's ministers. At last Desmarets, 
who was Comptroller-General of the Finances, proposed to 
the Council of State, as a way out of their difficulties, that 
they should, in addition to all existing numerous and 
abominable taxes, establish or take on the system of a royal 
tenth, which had been proposed by Vauban and Boisguille- 
bert as a substitute for all other taxes; with all the new 
machinery, officials, and valuations which such a system 
entailed. The proposition, after a brief consideration, was 
approved by the Council, and Desmarets was authorized to 
present it to the king; who, although long accustomed to 
various and extravagant exactions, is related at first to 
have been greatly terrified, and to have exhibited for some 
eight or ten days a profound melancholy. At the expira- 
tion of this period he regained his usual calmness, and 
gave the following explanation of the cause of his trouble : 
He said that he had been much tormented that the ex- 
tremity of his affairs required him to take so much of the 
wealth of his subjects ; and that at last he unbosomed him- 
self to the Pere Letellier (his confessor), who after a few 



128 THE THEORY AND PRACTICE OF TAXATION. 

days returned and reported that he had laid the matter 
before the most eminent doctors (theologians) of the Sor- 
bonne, by whom it was decided that all the wealth of his 
subjects was the king's, and that when he took of it he only 
took what belonged to him. The king added that this de- 
cision had taken away all his scruples, and had restored to 
him all the calm and cheerfulness that he had lost. After 
the king had been thus satisfied by his confessor, no time 
was lost in establishing the tax. The effect upon the masses 
was one of great sadness, but there was no revolt. Many 
of the property holders in the kingdom endeavoured to con- 
vince the state officials that under the former condition of 
affairs they did not enjoy a tenth part of their income, and 
representatives of the province of Languedoc offered to 
give up its entire wealth to the crown, if they might be 
allowed to enjoy, free of every tax, the tenth part of it. 
All these remonstrances and propositions were not only 
not listened to, but their presentation was regarded in the 
light of insubordination. 

The product of this new tax was not nearly so much as 
had been expected; and its most marked result was, that 
it enabled the king to augment all his infantry to the ex- 
tent of five men per company. 

In this record of tax experience, which, commencing at 
least as far back as 1667, under Louis XIV, continued with 
increasing popular oppression and misery until 1789, we 
find the origin and the horrors of the French Eevolution 
which began in the latter year. During its continuance 
six thousand persons, mostly of the ranks of the nobility, 
clergy, and gentry, are said to have perished under the 
hands of public executioners and upon the scaffold. But 
when one calls to mind the multitudes that, for many suc- 
cessive generations, were starved and tortured out of exist- 
ence by a system of exactions under the name of taxation, 
and for which system the king, the nobility, the clergy, 
and the influential classes of France were responsible, the 
wonder is that the masses of a brutalized and infuriated 
people should have shown so much clemency and restraint 
in the hour of their vengeance and of triumph.* 

* On this point Arthur Young, whose observations on the con- 
dition of the French people were made before the great Revolution 
had culminated, or in 1789, writes: "It is impossible to justify 



THE FRENCH REVOLUTION. 129 

It is interesting also to note in this connection that 
against no one class, when the revolutionary element be- 
came ascendant in France, was popular hatred more intense 
than to the farmers-general, to whom the collection of 
taxes in the different provinces of the kingdom was farmed 
out or contracted. The extravagant expenditure which, as 
a rule, characterized their living, was regarded by the 
masses as all-sufficient evidence of the enormous profits 
unjustly accruing to them from these contracts; and the 
power continually exercised by their agents to make domi- 
ciliary visits, seize goods, inflict fines, and take other meas- 
ures of an arbitrary, obnoxious character to enforce com- 
pliance with extortions, all contributed to make them ob- 
jects of execration by nearly the entire people. And this 
animosity under the revolutionary government speedily 
manifested itself, by sending thirty-two out of the whole 
number — sixty — of these high officials to the guillotine; 
among whom were undoubtedly some honest and conscien- 



ce excesses of the people on their taking up arms. They were 
certainly guilty of cruelties. But is it really the people to 
whom we are to impute the whole, or to their oppressors, who 
had kept them so long in a state of bondage? He who chooses to 
be served by slaves, and by ill-treated slaves, must know that 
he holds both his property and life by a tenure far different from 
those who prefer the service of well-treated freemen; and he who 
dines to the music of groaning sufferers must not, in the moment 
of insurrection, complain that his daughters are ravished and then 
destroyed, and that his sons' throats are cut. When such evils 
happen they surely are more imputable to the tyranny of the 
master than to the cruelty of the servant. The analogy holds with 
the French peasants. The murder of a seigneur, or a chateau in 
flames, is recorded in every newspaper. The rank of the person 
who suffers attracts notice. But where do we find the register 
of that seigneur's oppressions of his peasantry, and his exactions 
of feudal service from those whose children were dying around 
them for want of bread? Where do we find the minutes that as- 
signed these starving wretches to be fleeced by impositions, and 
a mockery of justice in the seigneural court? Who gives us the 
awards of the intendant and his sub-delegues, which took off the 
taxes from the man of fashion, and laid them with accumulated 
weight on the poor who were so unfortunate as to be his neigh- 
bours? Who has dwelt sufficiently on explaining all the ramifica- 
tions of despotism, regal, aristocratical, and ecclesiastical, pervad- 
ing the whole mass of the people, reaching like a circulating fluid 
the most distant capillary tubes of poverty and wretchedness ? " — 
Young's Travels in France, p. 323. 



130 THE THEORY AND PRACTICE OF TAXATION. 

tious financiers and otherwise distinguished men, such as 
Lavoisier, the father of modern chemistry. 

One of the great results of the French Revolution, which 
ought to be duly weighed in reckoning up the good and 
evil of that mighty popular convulsion, is that it swept 
away the feudal land laws of old France and made land- 
owners of several millions of men who were formerly serfs. 
Fully one half of the land of France at the present time 
is owned by small farmers or peasants ; and in their hands 
has been demonstrated afresh what Arthur Young called 
the magic power of property to turn sand to gold. Regions 
which he visited in 1788, and found barren and deserted, 
a hundred years later were clothed with vines and gardens 
under the tillage of peasant proprietors. 

From the foregoing consideration of France in the last 
century, experiencing through the abuse of taxation the 
most awful revolution in history, let us turn to a country 
of our own time and continent, and observe methods of 
taxation yet surviving the rigor and barbarism of the 
mediaeval period. 

Taxation" in Mexico. — Until recently, and to a great 
extent at present, the system of taxation operative in 
Mexico, the origin or evolution of which may in no small 
part be attributed to a sparseness of population, lack of 
accumulated wealth or capital, limited wants, and low 
civilization of the masses, is especially worthy of notice, 
and most instructive from the circumstance that nothing 
like it exists in any other country. 

The duties levied on imports into Mexico are so exces- 
sive that the average rate of the Mexican tariff is probably 
greater than that adopted by any other country claiming 
to be civilized, with the possible exception of Russia. The 
favourite modern idea of making the tariff subserve two 
purposes — namely, the raising of revenue and the regula- 
tion of trade — does not appear as yet to have greatly in- 
terested either the people or Government of Mexico, as 
revenue, through the necessities of the state, is the su- 
preme consideration; and for securing this no other rule 
seems to have been recognised and followed in imposing 
duties on imports than that the higher the duty (or tax) 
the greater will be the accruing revenue. 

But with this general characterization of the Mexican 



TAXATION IN MEXICO. 131 

tariff there comes in the following other most anomalous 
feature : Thus, in all commercial countries, save those which 
permit the levy by certain municipalities of the so-called 
octroi taxes, when foreign articles or merchandise have once 
satisfied all customs requirements at a port, or place of 
entry, and have been permitted to pass the frontier, they 
are exempted from any further taxation as imports so long 
as they retain such a distinctive character. In the United 
States, for example, it is held that the right to import car- 
ries with it a right to sell (i. e., in the original packages) 
without further restrictions. And the Supreme Court of 
the United States has decided that a license tax imposed 
by a State of the Federal Union, as a prerequisite to the 
right to sell an imported article, is equivalent to a duty 
on imports, and in violation of the provision of the Federal 
Constitution which prohibits the States from imposing 
import duties; and this decision has been carefully recog- 
nised by the authorities of the several States in dealing 
with imported liquors under local license, or other re- 
strictive laws.* 

But, in Mexico, each State of the republic has, until 
recently, had practically its own custom-house system, and 
levies taxes on all goods — domestic and foreign — passing 
into its territory for the purpose of use or consumption; 
and then, in turn, the several towns of the States again 
assess all goods entering their respective precincts. The 
rate of State taxation, being determined by the several 
State Legislatures, varies, and varies continually, with each 
State. In the Federal District — i. e., the city of Mexico 

* " An importer of foreign goods, in his capacity as such, is 
not the subject of State taxation, and can not be required to pay 
a license fee as importer; and his sales are exempt from State 
taxation, because he purchases, by the payment of the duty, a 
right to dispose of the merchandise as well as to bring it into the 
country; and the tax, if it were admissible, would intercept the 
import, as an import, in the way to become incorporated with the 
general mass of property, and would deny it the privilege of be- 
coming so incorporated until it should have contributed to the 
revenue of the State. But when the importer has sold the im- 
ported package, or has otherwise mixed the goods with the gen- 
eral property of the State by breaking up the package, a State 
tax which then finds the articles already incorporated with the 
mass of property by the act of the importer is not a tax upon 
commerce." — Cooley, The Law of Taxation, p. 68. 



132 THE THEORY AND PRACTICE OF TAXATION. 

— the rate was recently two per cent of the national tariff ; 
but in the adjoining State of Hidalgo it was ten per cent, 
and in others it has been as high as sixteen per cent. The 
rate levied by the towns is said to be about nine per cent 
of what the State has exacted; but in this there is no 
common rule. Nor is this all. For the transit of every 
territorial boundary necessitates inspection, assessment, the 
preparation of bills of charges, and permits for entry ; and 
all these transactions and papers involve the payment of 
fees, or the purchase and affixing of stamps. Thus, by 
section 377 of the tariff law of December, 1884, it is or- 
dained that " the custom house shall give to every individ- 
ual who makes any importation, upon the payment of 
duties, a certificate of the sum paid, which certificate, on 
being presented to the administrator of the stamp office 
in the place of importation, shall be changed for an equal 
amount in custom-house stamps. For this operation the 
interested party shall pay, to the administrator of whom 
he received the stamps, two per cent in money (coin) of the 
total value of the stamps." All imports into Mexico are 
liable, therefore, to these multiple assessments; and the 
extent to which they act as a prohibition on trade may be 
best illustrated by a practical example. 

In 1885 an American gentleman, residing in the city 
of Mexico as the representative of certain New England 
business interests, with a view of increasing his personal 
comfort, induced the landlady of the hotel where he resided 
(who, although by birth a Mexican, was of Scotch par- 
entage) to order from St. Louis an American cooking stove, 
with its customary adjuncts of pipes, kettles, pans, etc. 
In due time the stove arrived; and the following is an 
exact transcript of the bills contingent, which were ren- 
dered and paid upon its delivery: 

Original Invoice: 

1 stove weight 282 pounds. 

1 box pipe " 69 

1 box stove furniture " 86 w 

Total 437 pounds, or 199.3 kilos. 

Cost in St. Louis, United States currency $26 50 

Exchange at 20 per cent 5 30 

Total $31 80 



MEXICAN CUSTOMS DUTIES. 133 

Original Invoice (continued) : 
Freight from St. Louis to city of Mexico (rail), 

at $3.15 per 100 pounds $15 75 

Mexican consular fee at El Paso 4 85 

Stamps at El Paso 45 

Cartage and labour on boxes examined by custom 

house at El Paso 50 

Forwarding commission, El Paso 2 00 

Exchange 16f per cent on $7.64 freight advanced 

bv Mexican Central Railroad 1 25 

$56 60 

Import Duties: 

1 box, 128 kilos (stove), iron, without brass or 

copper ornaments, at 19 cents per kilo $24 42 

1 box, 31.3 kilos, iron pipe, at 24 cents per kilo. . 7 51 
1 box iron pots, with brass handles, at 24 cents 
per kilo 9 48 

$41 41 
Add 4 per cent as per tariff 1 65 

$43 06 
Package duty, 50 cents per 100 kilos 1 00 

$44 06 
Add 5 per cent as per tariff 2 20 

$46 26 
Add 2 per cent municipal duty 93 

$47 19 
Add 5 per cent consumption duty 2 36 

$49 55 
Despatch of goods at Buena Vista station, city 

of Mexico 38 

Stamps for permit 50 

$50 43 



$107 03 
Cartage in City of Mexico 75 



Total $107 78 

Resume : 

Original cost of stove, with exchange $31 80 

Freight, consular fees, and forwarding 24 80 

Import duties 50 43 

Cartage 75 

Total $107 78 



134: THE THEORY AND PRACTICE OF TAXATION. 

Under such a system articles of the most common use 
in the United States are from their increase of price neces- 
sarily made articles of luxury. 

Again, the Mexican tariff provides that the effects of 
immigrants shall be admitted free. " But this is rendered 
practically a dead letter, from the fact that the interior 
duties are levied on everything the immigrant has before 
he gets settled; and these are so heavy that immigration 
has been greatly discouraged. A carpenter, or other me- 
chanic, who desires to get employment in Mexico, has 
such heavy duties levied on his tools on passing the na- 
tional or State frontiers that few are willing or able to 
pay them. Hence, few American mechanics find their way 
into the country, unless in accordance with special con- 
tract." 

The existence in a state of the New World of a system 
of taxation so antagonistic to all modern ideas, and so de- 
structive of all commercial freedom, is certainly very curi- 
ous, and prompts to the following reflections: First, how 
great were the wisdom and foresight of the framers of the 
Constitution of the United States in providing, at the very 
commencement of the Federal Union, that no power to 
tax in this manner, and for their own use or benefit, 
should ever be permitted to the States that might com- 
pose it (Article I, section 10). Second, how did such a 
system come to be ingrafted on Mexico? for it is not a mod- 
ern contrivance. All are agreed that it is an old-time 
practice and a legacy of Spanish domination. But, fur- 
ther than this, may it not be another of those numerous 
relics of European medievalism which, having utterly 
disappeared in the countries of their origin, seem to have 
become embalmed, as it were, in what were the old Span- 
ish provinces of America — a system filtered down through 
Spanish traditions from the times when the imposition 
of taxes and the regulation of local trade were regarded 
by cities and communities in the light of an affirmation of 
their right to self-government, and as a barrier against 
feudal interference and tyranny; and when the idea of 
protecting industry through like devices was not limited 
as now, to international commerce, but was made appli- 
cable to the commercial intercourse of cities and communi- 
ties of the same country, and even to separate trades or 



INTERNAL TAXES OF MEXICO. 135 

" guilds " of the same city ? Whether such speculations 
have any warrant in fact or not, it is at least certain that 
we have in the Mexico of to-day a perfect example of 
what was common in Europe in the middle ages; namely, 
of protection to separate interests (through taxation) car- 
ried out to its fullest and logical extent, and also of its 
commercial and industrial consequences. 

So much for the tariff system of Mexico and its ad- 
juncts. The " excise " or " internal revenue " system of 
the country is no less extraordinary. It is essentially a 
tax on sales, collected in great part through the agency 
of stamps, and is a repetition of the old " alcavala " tax 
of Spain, even to the extent of retaining its name slightly 
modified from alcavala to " alcabala " ; and which Adam 
Smith, in his Wealth of Nations, describes as one of the 
worst forms of taxation that could be inflicted upon a 
country, and as largely responsible for the decay of Span- 
ish manufactures and agriculture. Thus a Federal statute 
of Mexico, enacted in 1885, imposed a tax of " one half 
of one per cent upon the value in excess of twenty dollars 
of transactions of buying or selling of every kind of mer- 
chandise, whether at wholesale or retail, in whatever place 
throughout the whole republic." Also, one half of one per 
cent " on all sales and resales of country or city property ; 
upon all exchanges of movable or immovable property; 
on mortgages, transfers, or gifts, collateral or bequeathed 
inheritances; on bonds, rents of farms, when the rent ex- 
ceeds two thousand dollars annually; and on all contracts 
with the Federal, State, or municipal governments." 
Every inhabitant of the republic who sells goods to the 
value of over twenty dollars must give to the buyer " w an 
invoice, note, or other document accrediting the purchase," 
and affix to the same, and cancel, a stamp corresponding to 
the value of the sale. Sales at retail are exempt from this 
tax ; and retail sales are defined to be " sales made with 
a single buyer, whose value does not exceed twenty dollars. 
The union, in a single invoice, of various parcels, one of 
which does not amount to twenty dollars, but which in the 
aggregate exceed that quantity," remains subject to the 
tax. Retail sales in the public markets, or by ambulatory 
sellers, or licensed establishments whose capital does not 
exceed three hundred dollars, are also exempt. Tickets 



136 THE THEORY AND PRACTICE OF TAXATION. 

of all descriptions — railroad, theatre, etc. — must have a 
stamp, as must each page of the reports of meetings, each 
leaf of a merchant's ledger, day or cash book, and every 
cigar sold singly, which must be delivered to the buyer 
in a stamped wrapper. Sales of imported spirits pay eight 
per cent on the duties levied on their importation, and 
a half of one per cent in addition when retailed. Domestic 
spirits pay three per cent when sold by producers or 
dealers at wholesale, and a half of one per cent additional 
when sold at retail. Gross receipts of city railroads pay 
four per cent; public amusements, two per cent upon the 
amount paid for entrance; playing cards, fifty per cent — 
paid in stamps — on the retail price; and manufactured 
tobacco a variety of taxes, proportioned to quality and 
value. Mercantile drafts are taxed at a dollar on every 
hundred. 

Farms, haciendas, and town estates are required to be 
taxed at the rate of three dollars per each thousand dollars 
of the valuation, but such is the influence of the landowners 
that the valuation is almost nominal. In Vera Cruz the 
rate is reported at about two mills on the dollar for the 
most productive portions of country estates; while in the 
Pacific State of Colima the rate is said to be one and a 
half per cent. Land and buildings not actually produc- 
ing income are exempt from taxation, notwithstanding 
they may be continually enhancing in value. This sys- 
tem of exempting unoccupied realty from taxation also 
prevails in Portugal ; and the Mexican usage was probably 
derived from that country, where the theory in justifica- 
tion of the practice is, that the use of a thing defines its 
measure of value, and that to tax unused property is con- 
fiscation. 

A recent Mexican statute for the taxation of land con- 
tains forty-seven different sections, each providing the 
ways and means of enforcing the tax and prescribing penal- 
ties for its infraction. In the towns and cities of Mexico 
this system of infinitesimal taxation is indefinitely re- 
peated, the towns acting as collectors of revenue for the 
Federal and State governments, as well as for their own 
municipal requirements. All industries pay a monthly 
fee: As tanneries, fifty cents; soap factories, one dollar. 
So also all shops for the sale of goods pay according to 



HINDRANCES TO TRADE. 137 

their class, from a few dollars down to a few cents per 
month. Each beef animal, on leaving a town, pays fifty 
cents; each fat pig, twenty-five cents; each sheep, twelve 
cents; each load of corn, fruit, vegetables, or charcoal, 
six cents (as a supposed road tax), and so on; and, on 
entering another town, all these exactions are repeated. 
A miller, in Mexico, it is said, is obliged to pay thirty- 
two separate taxes on his wheat before he can get it from 
the field and offer it, in the form of flour, on the market 
for consumption. As a matter of necessity, furthermore, 
every centre of population — small and big, city, town, or 
hamlet — swarms with petty officials, who are paid to see 
that not an item of agricultural produce, of manufactured 
goods, or an operation of trade or commerce or even a 
social event, like a fandango, a christening, a marriage, 
or a funeral, escapes the payment of tribute. 

In fact, trade has been so hampered by this system 
of taxation that one can readily understand and accept the 
assertion that has been made, that people with capital in 
Mexico really dread to enter into business, and prefer to 
hoard their wealth, or restrict their investments to land 
(which, as before pointed out, is practically exempt from 
taxation), rather than subject themselves to the never- 
ending inquisitions and annoyances which are attendant 
upon almost every active employment of persons and capi- 
tal, even were all other conditions favourable. Mexico, 
from the influence of this system of taxation alone, must, 
therefore, remain poor and undeveloped; and no argu- 
ment to the contrary can in any degree weaken this asser- 
tion. Doubtless there are many intelligent people in 
Mexico who recognise the gravity of the situation, and are 
most anxious that something should be done in the way 
of reform. But what can be done? If autocratic powers 
were to be given to a trained financier, thoroughly versed in 
all the principles of taxation and of economic sciences, and 
conversant with the results of actual experience, the prob- 
lem of making things speedily and radically better in 
this department of the Mexican state is so difficult that 
he might well shrink from grappling with it. 

In the first place, the great mass of the Mexican people 
have little or no visible tangible property which is capable 
of direct assessment. 
10 



138 THE THEORY AND PRACTICE OF TAXATION 

Again, in any permanent system of taxation, taxes in 
every country or community, in common with all the ele- 
ments of the cost of production and subsistence — wages, 
profits, interest, depreciation, and materials — must be sub- 
stantially drawn from each year's product. Now, the 
annual product of Mexico is comparatively very small. 
For example, the annual product of one of the least devel- 
oped States of the Federal Union — South Carolina — was 
in 1888 absolutely two and a half times — or, proportionally 
to area, twenty-five times — as valuable as the then an- 
nual product of the entire northern half of Mexico; and 
the Argentine Eepublic of South America, with only one 
third the population of Mexico, has a revenue twenty per 
cent greater, and double the amount of foreign commerce. 
Product being small, consumption must of necessity be also 
small. " The average cost of living (food and drink) 
to a labouring man in the* city of Mexico is about twenty- 
five cents per day; in the country, from twelve and a half 
to eighteen cents. The average annual cost of a man's 
dress is probably not over five dollars; that of a woman, 
double that sum, with an undetermined margin for gew- 
gaws and cheap jewelry." Mr. Lambert, United States 
consul at San Bias, reported under date of May, 1884: 
" The average labourer and mechanic of this country may 
be fortunate enough, if luck be not too uncharitable toward 
him, to get a suit of tanned goatskin, costing him about six 
dollars, which will last him as many years." Of house- 
hold goods the mass of the Mexican people are almost 
destitute. A few untanned hides are used for beds, and 
dressed goat or sheep skins serve for mattress and cov- 
ering. 

The food of the masses consists mainly of agricultural 
products — corn (tortillas), beans (frijoles), and fruits — 
which are for the most part the direct results of the labour 
of the consumer, and not obtained through any mechanism 
of purchase or exchange. 

Persons conversant with the foreign commerce of Mex- 
ico are also of the opinion that not more than five per cent 
of its population buy at the present time any imported 
article whatever, and that for all purposes of trade in 
American or European manufactures the consuming popu- 
lation is not much in excess of half a million. Eevenue in 



LAND OWNERSHIP IN MEXICO. 139 

Mexico from any tariff on imports must therefore be lim- 
ited, and this limitation is rendered much greater than it 
need be by absurdly high duties, which (as notably is the 
case of cheap cotton fabrics) enrich the smuggler and a few 
mill proprietors to the great detriment of the national ex- 
chequer. 

It is clear, therefore, that the basis available to the 
Government for obtaining revenue through the taxation 
of articles of domestic consumption, either in the pro- 
cesses of production or through the machinery of dis- 
tribution, is of necessity very narrow ; and that if the state 
is to get anything, either directly or indirectly, from this 
source, there would really seem to be hardly any method 
open to it other than that of an infinitesimal, inquisitorial 
system of assessment and obstruction akin to what is al- 
ready in existence. 

But the greatest obstacle in the way of tax reform in 
Mexico is to be found in the fact that a comparatively few 
people — not six thousand out of a possible ten million — 
own all the land and constitute in the main the govern- 
ing class of the country, and the influence of this class has 
thus far been sufficiently potent practically to exempt land 
from taxation. So long as this condition of things pre- 
vails it is difficult to see how there is ever going to be a 
middle class (as there is none now worthy of mention) 
occupying a position intermediate between the rich and 
a vast ignorant lower class that take no interest in public 
affairs, and is only kept from turbulence through mili- 
tary restraint. Such a class in every truly civilized and 
progressive country is numerically the largest, and com- 
prising the great body of producers, consumers, and tax- 
payers, is the one most interested in the promotion and 
maintenance of good government. A tax policy, however, 
which would compel the landowners to cut up and sell 
their immense holdings, especially if they are unwilling 
to develop them, would be the first step toward the creation 
of such a middle class. But it is not unlikely that Mexico 
would have to go through one more revolution, worse 
than any she has yet experienced, before any such result 
could be accomplished. At present, furthermore, there is 
no evidence that the mass of the Mexican people, who 
would be most benefited by any wise scheme for the par- 



140 THE THEORY AND PRACTICE OF TAXATION. 

tition of the great estates and for tax reform, feel any 
interest whatever in the matter or would vigorously sup- 
port any leader of the upper class who might desire to 
take the initiative in promoting such changes; and herein 
is the greatest discouragement to every one who wishes 
well for the country. 

In 1892, the present enlightened President of the 
Republic of Mexico, Porflrio Diaz, fully recognising the 
great obstruction to trade and commerce which the com- 
plicated system of internal taxation entailed upon the 
country, created a commission to report what was neces- 
sary to institute a better fiscal system. As a result of 
the labours of this commission the Federal Constitu- 
tion was amended so as to provide for the total repeal 
of the internal taxes on trade, the alcavalas, and this 
radical change was accomplished July 1, 1896. The States, 
deprived by this measure of their income from merchan- 
dise coming into or passing through their territory, modi- 
fied their tax systems, substituting for the abolished duties 
direct taxes. In January, 1898, the Secretary of the 
Treasury, Jose Ives Limantour, reviewing the financial 
operations of the year, stated that the receipts from these 
direct taxes had been very satisfactory, considering the 
difficulties generally encountered in the collection of a new 
tax. As the contributions from the States to the Federal 
Treasury had been intimately connected with the alca- 
valas, it was expected some heavy decrease would occur; 
but this deficiency amounted to less than thirty thousand 
dollars in the first year, and the prospect of further deficits 
was not encouraged. The abolition of the vexatious alca- 
valas has resulted in a greater commercial activity. 



CHAPTEE VI. 

TAXATION IN EGYPT AND BRAZIL. 

Taxation in Egypt. — Herodotus, the Father of His- 
tory, in writing more than two thousand years ago about 
Egypt, characterized it as a land of wonders, " contain- 
ing more marvellous things than any other country," and 
in this opinion the judgment of succeeding ages, finding 
an all-sufficient warrant in primeval, stupendous, and mys- 
terious monuments, has been compelled, as it were, fully 
to acquiesce. At this latter day, however, there has been 
added to Egyptian history what may be rightfully termed 
another wonder, namely, the most interesting and instruc- 
tive experience in taxation in the world's history. In- 
teresting and instructive because it affords striking and 
almost unprecedented illustrations of the results contin- 
gent on an arbitrary and unintelligent treatment of a 
heavy annual requirement of revenue for the support of a 
state, as contrasted with the results which have been the 
sequence of a wise and practical policy for a like purpose 
in the same country and under similar conditions. 

Previous to the military occupation of Egypt by the 
British forces in 1882, consequent upon the suppression 
of the rebellion under the lead of Arabi Pasha, the condi- 
tion of the country was wretched almost beyond concep- 
tion. Its revenue system, in accordance with Asiatic ideas, 
comprehended nearly every form of iniquitous extortion. 
The principal source of revenue was essentially in the 
nature of a land tax ; and for the dusky fellah, who repre- 
sents the bulk of the Egyptian population, and who, with 
a grimy white shirt girded about his loins, ploughs, sows, 
and reaps to-day as his forefathers have done before him 
for thousands and thousands of years, this tax meant that 
his houses, his cattle, and his lands " were but so much 
food placed before the lips of our lord (the Khedive) that 
he might eat thereof and have his fill." 

141 



142 THE THEORY AND PRACTICE OF TAXATION. 

" The seed was often barely sown for the coming crop 
before the tax-gatherer appeared with the usurer as his 
familiar spirit at his heels, claiming not only heavy tithes 
of the treasury, but the many tithes of those tithes which 
never reached the treasury, waylaid on the road along the 
steep ascending gradients of a predatory hierarchy. For 
what purposes or to what amount he could be mulcted the 
fellah had no means of knowing. The only record he 
kept was the number of strokes from the Jcoorbash which 
had wrung from him his last piastre. The only certainty 
he acquired by long and bitter experience was that, let his 
harvest be good or bad, only so much would be left to him as 
would barely suffice to keep body and soul together. Every 
year brought fresh imposts, and every new tax became in 
the hands of a corrupt administration a fresh pretext for 
unlawful exactions. To satisfy them the land was made 
to yield more frequent and more valuable but also more 
exhausting crops, until the soil itself caught the contagion 
of universal impoverishment. Still, the arrears of taxa- 
tion grew, and with them arrears of private indebtedness," 
until at last whole villages not infrequently petitioned 
the pasha "to accept the fee simple of their lands on 
condition merely that they should be allowed to rent them 
from him at an annual rental greater than the land tax 
itself, but still vastly less than the total amount of illegiti- 
mate imposts grafted on to the land tax." 

Extortion for the purpose of obtaining revenue for the 
state, and plunder for the officials intrusted with its collec- 
tion, was not the only form of oppression to which the 
miserable Egyptian peasantry were subjected. By an an- 
cient Asiatic institution called the corvee, the fellah was 
liable at any moment to be seized and dragged perhaps 
off to some distant part of the country to work under con- 
stant dread of the taskmaster's whip at any task suggested 
by the caprice of the Khedive or some powerful pasha; 
and it was under this system of compulsory, unpaid, severe, 
unfed labour, and with great attendant sacrifice of the 
lives of his subjects, that the then Khedive, Ismail Pasha, 
mainly built the Suez Canal. In addition there was a 
system of " military conscription invested with the terrors 
of the press-gang; there was the water supply for irriga- 
tion, generally inadequate and often dependent upon the 



REBELLIONS IN EGYPT. 143 

caprice of some local magistrate or corrupt official; there 
was the greed of unjust judges ; there was the whole hungry 
bureaucracy, feeding upon those beneath it in order that it 
might in turn feed those above it." 

Such, then, was the life that the fellah " lived in the 
days of the oppression "; not in the dim twilight of the 
past, but less than twenty years ago; not in remotely hid- 
den corners of Egypt, but throughout its entire length and 
breadth. 

In 1879 the exactions in Egypt, nominally for revenue, 
had become so oppressive, that the population refused to 
pay them, and, rising in revolt, drove Ismail Pasha from 
power and installed his son, Mohammed Tewfik, in his 
place. The new pasha found the finances of the country 
in such confusion that he was obliged to invoke the aid 
of European Governments in order to obtain the means 
necessary to pay the interest on the public debt; and in 
this way the British and French Governments, as repre- 
senting a large majority of the creditors, or holders of the 
debt, were practically given control of all the Egyptian 
sources of revenue. This condition of affairs was, how- 
ever, in turn so repugnant to the people that in the spring 
of 1882 a revolt broke out, headed by Arabi Pasha, the then 
Minister of War, which, with a popular cry of " Egypt for 
Egyptians ! " seemed for a time likely to be successful. But 
with the utter defeat of Arabi at the battle of Tel-el-Kebir, 
in September, 1882, the rebellion collapsed; Tewfik Pasha 
was restored to power, while the British forces, for the 
purpose mainly of maintaining the situation and insuring 
peace, practically retained possession of the country. It 
was under such circumstances that a reconstruction of the 
antiquated, arbitrary, and unequal Egyptian system of col- 
lecting revenue was entered upon as an immediate and 
imperative necessity for the establishment of a new and. 
better national fiscal policy, and the attainment thereby 
of some degree of national prosperity.* 

* Notwithstanding the adverse criticism that has been made on 
the action and policy of Great Britain, under the then existing 
circumstances, subsequent experience has proved that it saved 
Egypt from barbarism and anarchy, and all the nations interested 
in that country " from incalculable losses in blood and treasure, 
to say nothing of the deep dishonour which these losses, foreseen 



144 THE THEORY AND PRACTICE OF TAXATION. 

The career of Ismail Pasha, who as Khedive ruled over 
Egypt from 1863 to 1879, was a remarkable one. He was 
" as fine a type of the spendthrift as can well be found, 
whether in history or fiction. No equally reckless prodigal 
ever possessed equally unlimited control of equally vast 
resources. He came to the throne at a moment when there 
seemed to be no limit to the potential wealth of Egypt. 
The whole land was his, to do what he liked with it. 
The world was ready to lend money to develop it." The 
results of his government may be rightfully characterized 
from almost every point of view as appalling. When he 
commenced to rule in 1863 " the debt of Egypt was a 
little over £3,000,000 sterling ($15,000,000). The an- 
nual revenue of the country was amply sufficient to meet 
all needful expenditure. Yet at the end of 1876 the debt 
had risen to £89,000,000 ($445,000,000). A country of 
six million inhabitants and only five million acres of cul- 
tivated land had added to its burdens at the rate of £7,- 
000,000 ($35,000,000) a year. At the same time the taxa- 
tion of land had been increased by something like fifty 
per cent. There is nothing in the fiscal history of any 
country, from the remotest ages to the present time, equal 
to this carnival of extravagance and oppression." 

The revenue annually collected under Ismail Pasha is 
probably not accurately known, and has been reported as 
high as £15,000,000 ($75,000,000), from an estimated 
population in 1872 of 5,203,000. But, whatever the 
amount, it is certain that a very considerable portion of 
what was wrung from the miserable peasantry never found 
its way into any official ledger, or reached the national 
treasury. Of a great loan of £32,000,000 effected by the 
Khedive in 1873, only £20,700,000 reached the Egyptian 
treasury. The total amount sunk by the Government in 
the Suez Canal is estimated at £16,075,000 ($80,375,000). 
Yet Egypt has no share in the vast profits of the under- 
taking. It was not, however, the amount of taxation, 
crushing as it was in many cases, which worked the great- 
est mischief. " It was, above all, the cruel and arbitrary 

and yet unhindered, would have brought on civilized mankind. 
The Arabist movement possessed great destructive force, but_ it 
had not within itself the elements necessary for the construction 
of anything enduring."— England in Egypt, Sir Alfred Milner. 



REFORM OF EGYPT'S TAXES. 145 

manner in which the taxes were collected. The fellah was 
seldom sure of the amount that would be demanded of 
him. He was never sure of the moment when the demand 
would be made. The moment might, as likely as not, 
be the very one in which he was least able to pay. Called 
upon to find ready money while his crops were still in 
the ground, he was simply driven into the arms of the 
money-lender. His choice lay between so many blows of 
the Jcoorbash and the acceptance of the usurer's terms, 
however onerous. Under these circumstances money was 
borrowed at as much as sixty per cent per annum. Worse 
than that, it was often obtained by the sale of the growing 
crops, which were estimated for the purpose of the ad- 
vance at half or less than half their value. This state 
of things was bad enough, and it was pretty general, but 
the ruin of the cultivator was consummated in many in- 
stances by positive collusion with the usurer on the hint 
of corrupt officials. The latter would demand the pay- 
ment of taxes by the peasant, who was already in debt, at 
the very time when the interest on his debt was due. If 
he had any cash at all the authorities were bound to get it. 
When the usurer came after them, there was nothing left 
to the fellah but to surrender his land and cattle, or re- 
new his bond on still more ruinous terms. He was, in 
fact, entirely at the mercy of the lender/' 

That some betterment of such a condition of affairs 
was imperative if civilization was to be maintained and 
the substantial dissolution of Egyptian society prevented, 
seemed evident, and to effect it most rationally and speed- 
ily an experiment was instituted that, as respects its nature 
and results, finds no parallel in the world's history. This 
in brief was the creation of a fiscal commission, by Sir 
Evelyn Baring, then British agent and consul general in 
Egypt (but now Lord Cromer, minister plenipotentiary), 
the members of which were selected solely by reason of 
their recognised qualifications for the work in hand and 
invested with almost autocratic powers. To this commis- 
sion was intrusted the task of examining and reconstruct- 
ing a revenue system of long duration and fortified by the 
precedents, customs, and prejudices of an entire country, 
with a not inconsiderable population. The commission 
when organized in 18 84-' 8 5 entered upon its work under 



146 THE THEORY AND PRACTICE OF TAXATION. 

exceedingly unfavourable circumstances. The financial 
pressure was most acute. The magnitude of the national 
debt was apparently overwhelming; and the prices of the 
leading agricultural staples of the country, depressed in 
an extraordinary degree by world-wide competition, con- 
sequent upon improved conditions of production and 
transportation, seemed to preclude all possibility of obtain- 
ing any increased revenues from the masses by a continu- 
ance of the old, or even by any new methods of extor- 
tion. The first step taken was to abolish as rapidly and 
as far as possible all unnecessary and unproductive ex- 
penditures; and for this there was large opportunity. A 
diminution was made in the pension list, and in the num- 
ber of superfluous and highly paid officials. By the con- 
current action of the great powers of Europe the rate of 
interest on the funded debt of Egypt was also somewhat 
reduced. 

The next important measure that claimed the attention 
of the commission was the grievance of the corvee, or sys- 
tem of enforced labour on the part of the peasantry on the 
public works; which, if entitled to be called taxation, was 
taxation of the worst and most wasteful kind, entailing 
sacrifices upon the people out of all proportion to the 
money which it saved to the state. It was not, however, 
found practical at the outset to abolish it altogether. The 
old practice by which the fellahs might be dragged away 
from their villages at any moment for any purpose, public 
or private, upon which the Khedive might choose to em- 
ploy them, was at once totally abrogated. On the other 
hand, the agriculture of Egypt, the main source of support 
of her people, depends upon the water of the Nile, dis- 
tributed through irrigating ditches or canals; and in 
order that these should fulfil their purpose, it is neces- 
sary to keep them clear of the mud which the Nile at the 
period of its annual overflow brings down in large quan- 
tities ; and to effect this, no other labour than that of the 
fellahs is available. Finding that this indispensable work 
could be done by contract and paid labour, for about 
£400,000 ($2,000,000) per annum, the commission ap- 
propriated, from the funds made available from loans and 
the reduced expenses of the Government, the sum of 
£250,000, to be paid annually as compensation for such 



ABOLITION OF TAX BURDENS. 147 

service, and thereby at once reduced by more than fifty per 
cent the number of men formerly called out and com- 
pelled to perform service, without payment. In addition, 
the employment of skilled engineers and the introduction 
of improved machinery for dredging and excavating, still 
further reduced both the necessity for the labour of in- 
dividuals and the general aggregate of former expendi- 
tures. Whatever of the obligation of the corvee is still 
incumbent on the fellah, as, for example, when he is called 
in any sudden emergency to prevent breaks in embank- 
ments in time of flood, or keep clear the irrigation of his 
own land, is therefore largely in his own interest, and 
even this will probably at no distant day be abolished. But, 
be this as it may, it is certain that what of the corvee the 
commission has felt compelled to retain does not repre- 
sent one tithe of the awful incubus which the old corvee 
represented " in the days of the oppression." The use of 
the koorbash, or lash, which was the former invariable ac- 
companiment of unpaid labour in Egypt, has also been 
absolutely prohibited. Of other forms of relief to the 
people of Egypt, effected by the English fiscal commission, 
the following may be mentioned: 

An abandonment of a tax on sheep, goats, and camels, 
which was very obnoxious to the agriculturists; a tax on 
weighing and measuring; octroi taxes on rice, oil, and 
other commodities; and a tax on all trades and crafts, in 
the nature of licenses on business and professions, which 
was collected in innumerable small sums from the poor- 
est of the people. The price of salt, the supply and sale 
of which was a monopoly of the state, has been reduced to 
the extent of forty per cent, while large abatements have 
been made in judicial fees, postal and telegraph rates, and 
in railway rates and fares. 

As formerly, the tax on land is yet the corner stone of 
Egyptian finance, and can not be rapidly or radically dis- 
turbed ; but large measures of relief have nevertheless been 
instituted. A vexatious diversity of rates at which land 
has been assessed in different parts of the country has 
been simplified to the extent that a former total number 
of fourteen hundred different rates has been brought down 
to two hundred. The value of land varies greatly, accord- 
ing to its proximity to the Nile, and the extent to which 



148 THE THEORY AND PRACTICE OF TAXATION. 

it can be profitably supplied with water for irrigating pur- 
poses — land devoted to growing rice crops requiring con- 
stant watering, but must never be inundated. " From time 
immemorial Egyptian law has recognised an intimate con- 
nection between the land tax and water supply. The land 
which, in any given year, gets no water, is for that year 
legally exempt from all taxation whatever. As soon as it 
gets water its liability is established. But it is evident 
that the mere fact of receiving some water, though it 
may set up the liability of the cultivator to pay, does not 
insure his capacity to do so. In order to insure that, he 
must get his water in proper quantities and at the proper 
times. But this is just what, in thousands of instances, 
he could not get, as long as the irrigation system remained 
in the state of unutterable neglect and confusion into 
which it had fallen in the period previous to the British 
occupation of the country." Arrears of land taxes through- 
out the whole country to the amount of about $5,000,000 
have been remitted altogether by the commission, while 
lands incapable of cultivation, but heretofore made sub- 
ject to taxation, have to a great extent been relieved.* 

* " A considerable class of lands, called mazroof, sold many 
years ago by the Government at a quitrent which in the course 
of time had come to be looked upon as a specially high rate 
of land tax, has also been assimilated to the surrounding dis- 
tricts. 

" Another measure of great importance for the future has been 
the adoption of more liberal fiscal regulations with regard to land 
brought for the first time under cultivation. Formerly the first 
attempt to reclaim a piece of uncultivated land brought down 
the tax-gatherer, who at once subjected it to the full burden of 
the land tax. Now it remains untaxed until it yields the first 
remunerative crop, and then for two years it pays only half the 
normal rate. In the same broad spirit, facilities have been granted 
to people who are found without proper title in possession of land 
belonging to the Government, but on which they have spent labour 
and money in developing. Such occupiers can nowadays be con- 
firmed in possession on very easy terms, in which full account is 
taken of all improvements. Finally, a scheme has been devised, 
and has been already applied with considerable success, for se- 
curing relief, without having to enter upon a general reassess- 
ment, in those no longer very numerous cases where the existing 
land tax is really excessive. Instead of allowing, as hitherto, 
arrears to accumulate which have ultimately to be remitted, the 
defaulting land is seized and put up for sale, but on such terms 
as to facilitate the re-entry of the owner on a lighter rating 



LAND TAX OF EGYPT. 149 

The area of land under cultivation in Egypt in 1894 
was about five million acres; and in the least prosperous 
part of the country the tax on the same has been re- 
duced, since the creation of the commission, to an extent 
of at least thirty per cent. The revenue from the taxation 
of land, which is at present estimated as not exceeding on 
an average £1 ($5) per acre, constitutes fully one half of 
the total receipts of the Egyptian treasury. 

In 1886, before the reduction in this tax had been 
made, its revenue product was £5,116,000 ($25,580,000— 
the Egyptian pound being about £1 0s. 6d.). In 1891 its 
product, after the large reductions noted, was £5,098,000 
($25,490,000) ; a result constituting a new and striking 
illustration of a little regarded principle of taxation, that 
low or moderate taxes are as a rule more prolific of reve- 
nue than comparatively high taxes. It is also worthy of 
note that the land taxes of Egypt under the reduced rates 
are collected with greater facility and much less expense 
than under the old system. 

Viewed, as it should be, rather as a rent than as a tax, 
the present Egyptian tax on land can hardly be regarded 
as oppressive. The number of land proprietors in Egypt, 
according to the revenue returns for 1893, was 1,025,000. 
In only 8,569 cases were the fiscal officers obliged to seize 
crops in payment of the land tax. In three out of four of 
such cases the mere seizure acted as a sufficient threat to 
induce payment, and in only 2,158 cases was it necessary 
actually to sell the defaulters' crops. As for the seizure 
and forced sale of the land itself, there were only 1,865 
cases of seizure and less than one in nine of actual sale — 
viz., 204. The number of expropriations for failure to pay 
the land tax had therefore been reduced to the infinitesimal 
proportion of one in five thousand. 

The total revenue receipts of the Egyptian treasury 
during the year 1886, after the commission had begun to 
exert an influence on the fiscal affairs of the country, was 

wherever the arrears are shown to be due to a prohibitive assess- 
ment in the past. 

" Thus, not only the huge accumulation of arrears and the 
many smaller obstacles have been removed which blocked the ap- 
proaches to the land tax, but the land tax itself has been cleared 
of its most mischievous excrescences." 



150 THE THEORY AND PRACTICE OF TAXATION. 

£7,337,000 ($36,685,000). In 1890 they had increased 
to £8,040,000 ($40,200,000), and in 1891 to £8,366,000 
($41,830,000). To the extent of about one third, this 
augmentation was due to heavier taxes on tobacco, and a 
few new taxes, as a tax on house occupancy, from which 
all foreigners previous to 1887 were exempt. In general, 
the increase in revenue receipts consequent upon new taxes 
imposed since 1885 has been about £570,000 ($2,850,000) ; 
but the reductions of taxation have at the same time been 
notably in excess of this amount. The public debt of 
Egypt, which was nearly £99,000,000 ($495,000,000) in 
1880, has been increased in recent years to the extent of 
between two and three millions ; but this increase has been 
mainly devoted to the redemption of pensions and to re- 
productive public works. 

The general results that have been attained in Egypt 
under the fiscal and administrative policy of the British 
commission are, therefore, worthy at least of being char- 
acterized as extraordinary. They can not, moreover, be 
properly exemplified by any mere exhibit of figures. The 
benefit that has accrued to the Egyptian people can not be 
properly measured by a reduction of their taxes, but rather 
by the increase in their means of bearing the burden that 
remains. " The greatest vice of all in their old system of 
government was that, while the demands made upon the 
people were constantly increasing, their capacity to meet 
those demands was being steadily impaired. The Gov- 
ernment took from them twice as much as it was entitled 
to take, and did not give them in return what it was bound 
to give; while the coffers of the state and the pockets of 
its servants were being filled by the plunderer of the peas- 
antry. The soil was deteriorating from the neglect of 
those great public works upon which its fertility de- 
pended." 

All this abuse has now been entirely abrogated. For 
the first time since the days of the Koman administration, 
order and prosperity reign in the valley of the Nile. 

At no previous period since Egypt began to have a 
name has the fellah lived under a government so careful 
to protect his rights. For the first time he is allowed to 
control the fruits of his labour. To-day, under British 
domination, every Egyptian peasant knows exactly the 



RESULTS OF ENGLISH OCCUPATION. 151 

amount of taxes he has to pay and when he has to pay 
them; and that when he has once paid the legal amount, 
no official, big or small, has the power to extort from him 
one single piastre beyond it.* He knows, too, that he can 
not at any moment be seized and dragged off as formerly, 
perhaps to some different part of the country, to work 
under constant dread of the whip, at any task suggested 
by the caprice of the Khedive or of some powerful pasha. 
Under such circumstances Egypt has never, certainly not 
within a recent period, enjo}^ed so large a measure of 
prosperity. Notwithstanding the recent universal decline 
in price of agricultural staples, the Egyptian products and 
exports of cotton, sugar, tobacco, wheat, etc., have rapidly 
increased, and at present are much greater than at any for- 
mer period. The annual increase in the great staple product 
of Egyptian agriculture — cotton — from the average of 
1884-'89 to that of 1893-94 was nearly a hundred per cent, 
whereby the cultivator was not only able to pay his taxes 
more easily, but has more money left for his own needs. 

When England first occupied the country the four-per- 
cent Egyptian debt securities were quoted at about 50, and 
not long before had been quoted as low as 27. To-day 
their quotation is over 100, with a reduction of their 
originally stipulated interest. 

One of the most recent results of the British occupa- 
tion of Egypt has been a practical abolition of human 
slavery. Under existing regulations every slave in Egypt 
(the former great market for enslaved people of Africa) 
may demand his manumission if he chooses; and if the 
Soudan be retaken by Egyptian troops under British leader- 
ship, it will be equivalent to opening the prison doors to 
hundreds of thousands of captives. f 

* " The poorest peasant in the country is now annually fur- 
nished with a tax-paper, wird, as it is called, which shows him 
exactly what he has to pay to the Government, and at what 
seasons the instalments are due. The dates of these instalments, 
moreover, which vary in different provinces, have been arranged 
so as to correspond as nearly as possible with the seasons when 
the cultivator realizes his produce, and is therefore in the best 
position to discharge his debt to the state. The necessity no 
longer exists of resorting to bribery as a protection against the 
extortion of sums not due on the part of the tax-gatherer." 

f This has now been accomplished (1898). 



152 THE THEORY AM) PRACTICE OF TAXATION. 

In 1876 the district known as the " Fayoum," on the 
west side of the Nile, southwest of Cairo, was, according 
to a correspondent of the London Times, " reduced by mis- 
rule to the greatest depths of misery probably ever experi- 
enced in modern times in Egypt. The burden of taxation 
and oppression had produced an amount of want which 
almost bordered on starvation. At the present time 
(1894) it is one of the most prosperous and contented of 
provinces, and bids fair to become in the future the very 
garden of Egypt." 

A further striking proof of the prosperity of Egypt 
under British administration is afforded by the financial 
report for 1895, made by Lord Cromer, the British diplo- 
matic agent, which shows a revenue in excess of all ex- 
penditures for that year of £1,088,000 ($5,440,000), per- 
mitting a relief to the taxpayer to that extent. This has 
been accomplished in the face of liberal reductions in 
taxes. Certain of these concessions should be recorded if 
only to show the enlightened policy pursued by the foreign 
ruler of Egypt. Since 1890 the remission of taxation has 
been as follows : 



Corvee 

Land tax * 


.... £400.000 
574,000 


= 


$2,000,000 
2,870,000 


Professional tax 


180,000 


900,000 


Sheep and goat tax 

Weighing tax 

Sundries 


40,000 
28,090 
53,000 


200,000 
140,000 
265,000 


Total 


. . . . £1,275,000 


$6,375,000 



Nor is this all. Arrears of the land tax to the amount 
of $5,000,000 have been remitted; the salt tax has been 
reduced forty per cent ; a beginning has been made toward 
the total abolition of tolls paid by boats on the Nile, a 
step toward making the navigation of that river entirely 
free; the construction of bridges over the canals, thus 
relieving the people of the cost of ferries, and the repeal 
of the tax on carriages, horses, mules, and donkeys in 
Cairo, a tax paid only by the natives. " With its abolition 
the last remnant of European fiscal privilege disappears." 

That the continued prosperity and development of 
Egypt are dependent on the continued administration of 
the country by the British Government seems too clear to 



WELFARE OF THE PEOPLE. 153 

admit of questioning; and it is also not less evident that 
if Egypt should now be abandoned by it, all that has been 
done for it would be speedily undone.* 

Finally, in considering the recent and remarkable fiscal 
experience of Egypt, one point of great economic in- 
terest should not be overlooked — namely, the lesson it 
teaches of the closeness of the relations of the finances of 
a state to the welfare of its people* and that these rela- 
tions, which are apt to be obscured, or even wholly lost 
sight of, under conditions of high and complex civiliza- 
tion, speedily make themselves apparent, and are therefore 
more easily traced and studied in a country of limited area 
and simple conditions of living on the part of its people. 
This experience historically groups itself under three sepa- 
rate and distinct periods : First, the period of reckless 
prodigality under the reign of Ismail Pasha, from 1863 
to 1879, of sixteen years. Second, a period of sudden retri- 
bution fraught with widespread misery, from 1879 to 1886. 
Third, a period of recovery from utter collapse, from 1886 
to the present time, the result of intelligent fiscal admin- 
istration so signal and complete as to be without precedent 
in history. 

An illustration of how history in Egypt has seemingly 
repeated itself in respect to taxation is here pertinent to 
the subject. Prior to the nineteenth century a key to the 
hieroglyphic writing of Egypt or of the so-called " de- 
motic," which was a short-hand or abridged form of the 
true hieroglyphics, had not been discovered, and there was 
little probability that it ever would be. 

In 1799, however, during the French occupation of 
Egypt, a large slab of black granite (now in the British 
Museum), which originally had been a monument in some 

* In a recent debate (1896) in the British House of Commons, 
Mr. Chamberlain, the Secretary of State for the Colonial Depart- 
ment, said: "It would be impossible to pass judgment upon the 
policy of the Government unless the Government first made up its 
mind definitely in regard to the immediate evacuation of Egypt. 
Nothing in recent history could be looked back to with more 
pride and satisfaction than the peaceful revolution in Egyptian 
affairs which had been accomplished with a handful of men and a 
British civil administration. If Egypt should be abandoned, all 
this would be undone. Egypt must be defended if her prosperity 
was to continue." 
11 



154 THE THEORY AND PRACTICE OF TAXATION. 

public edifice, was discovered in excavating for military 
purposes near the village of Rosetta, a place in Lower 
Egypt not far distant from Alexandria and the western 
mouth of the Nile. The slab had on it three inscriptions 
— the first in hieroglyphic text, the second in the demotic 
character, and the third in Greek letters ; and a study and 
comparison of them, mainly by Champollion, a French 
scholar, led to a solution of the problem of deciphering 
the hieroglyphic writing, which previously had almost com- 
pletely baffled analysis. It was then found that the tri- 
lingual inscriptions were in the main a copy of a decree 
in honour of Ptolemy V, Epiphines, King of Egypt, who, 
about 193 b. c, had conferred great benefit on his country 
and its people by remitting certain taxes and reducing 
others, and read as follows : 

" Considering that the King Ptolemy, ever living, the 
well-beloved of Phtah, most gracious son of the King Ptol- 
emy and of the Queen Arsinoe — gods philopatores (father- 
loving) — has done all kinds of good; . . . that he has not 
neglected any of the means within his power to perform 
acts of humanity; that in order that in his kingdom the 
people and in general all the citizens should be in pros- 
perity, he has suppressed altogether some of the taxes 
and imposts established in Egypt, and has diminished the 
onus of others: ... It has therefore pleased the priests 
of all the temples of the land to decree that all the honours 
belonging to the king shall be considerably augmented; 
that his statue shall be erected in the most conspicuous 
spot in each temple; that the priests shall perform three 
times each day religious service to these statues; and that 
in all great solemnities all the honours due to other deities 
shall be paid them. . . ." 

More than two thousand years have elapsed since the 
service rendered by Ptolemy to Egypt and its people by the 
remission and readjustment of taxes was thus commemo- 
rated. King, priests, and people have long since passed 
away ; but if they could return, their gratitude to the Eng- 
lish tax commission for the service rendered to their 
country and to their descendants would certainly again 
be recognised and fitly commemorated. 

Another point of historical and fiscal interest in con- 
nection with Egypt is worthy of notice. Of the conquest 



TAXATION IN BRAZIL. 155 

and occupation of Egypt by the French, 1798-1801, the 
masses of its people have hut little knowledge; but the 
name of General Kleber, to whom the government of the 
country was intrusted by Napoleon on his return to France, 
is still held in grateful remembrance, coupled with the 
highest title that the Arabs could bestow upon him — name- 
ly, " The Just "■ — because under his rule, as popular ex- 
pression has it, " he levied taxes only once." * 

Taxation in Brazil. — A most striking and instruc- 
tive example of the strangulation of the commerce of a 
country, and its consequent impoverishment by reason of a 
vicious system for the collection of revenues, is to be found 
in the recent experience of the South American state of 
Brazil. Its Government derives its support mainly from 
export and import duties, and every province, whether 
maritime or interior, collects a separate duty of generally 
about four or five per cent on its exports, to which in some 
instances a municipal tax is added. In the case of Ama- 
zonas, where the rubber industry has been greatly devel- 
oped, nine tenths of its revenue is derived from the export 
duty on rubber. There is no taxation upon either real or 
personal property; but when a piece of real estate is sold, 
the purchaser is required to pay a fee to the Government 
of five per cent on the selling price. All stores are obliged 
to obtain a license, for which a fee is exacted, the amount 
varying with the kind of trade. The duties on imports are 
extremely heavy, and on many articles, especially foods, 
are in excess of their original cost at their place of produc- 
tion. On some of the principal articles of export the duties 
have been as high as twenty-three per cent ad valorem, on 
rubber and cocoa fourteen per cent, and thirteen per cent 

* For the material which has furnished the basis for the fore- 
going narrative of the recent fiscal (tax) experience of Egypt, 
the writer has been mainly indebted to a book, England in Egypt, 
London, 1894, by Sir Alfred Milner, formerly a member of the 
Egyptian Fiscal Commission, and now chairman of the British 
Board of Inland Revenue; to a series of letters published in the 
London Times in 1894; to various official documents, and inter- 
views with those personally conversant with the subject under 
consideration. Lord Cromer each year submits to Parliament an 
elaborate detail of the finances, administration, and condition of 
Egypt, and his reports are remarkable for their ability and treat- 
ment of public questions. 



156 THE THEORY AND PRACTICE OF TAXATION. 

on coffee. Few countries have greater commercial and 
industrial possibilities than Brazil; but Nature's prodigal 
efforts have been rendered futile by a vicious system of 
taxation, which has so restricted the development of her 
resources that the increase of exports in recent years has 
been mainly confined to the single article of India rubber, 
for the supply of which the country has practically a mo- 
nopoly. What is raised in Brazil is taxed; what is bought 
by her is taxed; while taxes are levied on her product of 
labour and on the payments for such products. The gen- 
eral result, therefore, has been that the world can buy com- 
paratively little of the Brazilian, and the Brazilian has 
comparatively little with which to buy of the world. 

No better system has been followed in the internal 
taxes of the country, and discriminating duties, levied 
upon foreigners and foreign corporations, have been im- 
posed, in spite of the opinion that such duties are uncon- 
stitutional. Eesort to extraordinary taxes is made be- 
cause of the inability to obtain much more revenue from 
imports, exports (gold and gunpowder), and the few inter- 
nal imposts. " The Constitution lays down narrow limits 
within which the Federal Government may impose taxa- 
tion, such important sources of revenue as land and house 
taxes, taxes on transfer of property, and on professions 
and industries, and export duties, being reserved to the 
governments of the States ; nor can the Federal Treasury 
draw on the resources of the States, most of which are 
able to show a respectable surplus. . . . The very vastness 
of the territory of Brazil, and the lack of certain and 
easy communications, render many taxes impossible or 
unprofitable, through the high cost and uncertainty of col- 
lecting them." 

The finances of Brazil have never been well managed. 
Under the empire, from 1822 to 1886, the accumulated 
deficits amounted to more than $310,000,000. It may be 
urged that the greater part of this expense had been 
placed in the construction of railways, ports, and other 
useful objects by which the national wealth has been in- 
creased. Under the republic, or since 1886, the deficits 
have amounted to $95,000,000, or nearly $10,000,000 a 
year, and the large sums borrowed during this period have 
been spent in making good deficits, in paying for the ex- 



LARGE DEBT OF BRAZIL. 157 

travagance of the administration, and in unprofitable ex- 
penditures, such as that caused by the naval revolt and 
the Eio Grande revolution. The immense sums of paper 
money issued and its depreciation have disorganized foreign 
commerce, and imposed a tax upon its foreign financial 
duties, in connection with its loans, that grows heavier each 
year. " The Government has annually to find a sum of 
more than £5,000,000 sterling to meet its gold obligations. 
The ordinary receipts being almost exclusively in paper, 
and exchange having fallen from 27fd. in 1889 to 7d. in 
December, 1897, the difficulty of finding gold for these re- 
mittances has yearly increased, until the burden of foreign 
debt has become almost unbearable. At the latter rate 
the loss incurred in purchase of gold for remittances, esti- 
mated for 1898 at £5,029,877, would amount to 127,742,902 
milreis. At 6d., a rate reached three months later, the 
loss would be 156,485,067 milreis — nearly half the entire 
estimated revenue." * As the revenues are decreasing, and 
existing taxes have reached their limit of productiveness, 
it is proposed to resort to an income tax. 

* Report of Mr. Beaumont, second secretary of H. B. M. legation 
at Rio de Janeiro, 1898. 



CHAPTER VII. 



TAXATION IN BRITISH INDIA. 

The Tax Experiences of India. — In contrast with 
the record of tax experiences in Egypt, that of India under 
like (British) influences, though equally singular and in- 
structive, is not equally satisfactory. The elements of the 
problem of raising sufficient revenue to defray the expenses 
of the state since India passed under British rule and in- 
fluence are substantially as follows: 

A vast area of territory — 1,609,151 square miles — with 
a population comprising more than one fifth of the human 
race — 288,159,692 in 1891 — and increasing at the rate of 
at least 30,000,000 for every decade, a number about equal 
to the present population of England and Wales; without 
homogeneity, but divided and subdivided, as is the case 
in no other country, by diversity of race, religion, caste, 
and language.* Of the population of India, 217,000,000, 
according to the census of 1881, were unable to read or 
write; while as respects property, the testimony of recog- 
nised authorities in 1877 was, that the value of the total 
yield of the land of India from all sources, including the 
produce of mines and the annual value of manufactures, 
would not average more than forty shillings (ten dollars) 
per head for the entire population.! As compared with 
Egypt, the situation in India has this marked difference, 

* In the Statistical Abstract relating to British India, annually 
published by the home Government, eighty-eight different lan- 
guages, distinctively Asiatic or non-European, are recognised as 
characteristic of the population. In 1884-85, out of a then total 
population of 253,891,536, only 202,920 were reported as using 
English in the sense of a mother-tongue; and only 1,862,626 that 
admitted of classification as " Christians." 

t Resources of Modern Countries. A. J. Wi 1cr >n. Longmans, 
London, 1878, vol. i, p. 57. Taxation in India. Shoshee Chunder 
Dutt, Justice of the Peace, Calcutta. 
158 



ALLEGED POVERTY IN INDIA. 159 

namely, that whereas in the former country the extreme 
poverty of its rural population — the fellahs — has not been 
due to any lack of fertile land, or any incapacity on their 
part for obtaining from it a comfortable subsistence with 
continued betterments in condition, but owing to the fact 
that they have from time immemorial been deprived of 
the control of the fruits of their labours; while in India 
the population is increasing so rapidly — especially under 
the conditions of peace which have been attendant on Brit- 
ish rule — and so disproportionately to the amount of new 
and fertile soil that can be appropriated, as to leave but 
little margin, under existing methods of cultivation, for 
increasing the means of subsistence for the people. In 
fact, the " Malthusian theory " is completely exemplify- 
ing itself in India, which is densely populated, destitute 
in a great degree of roads and of the knowledge and use 
of machinery.* 

In a debate in the British House of Commons on the 
Indian budget, in August, 1894, Mr. Seymour Keay, an 
ex-official of the Indian Government, stated that in 1892 
" he had a census taken of five villages in the presidency 
of Bombay. The population was 236. These five villages 
farmed 1,400 acres, the gross crop of which was valued 
at £193. If a starvation support of 14 shillings a year 
were allowed to each of the 236 persons and 11 shillings 
a year for each pair of bullocks kept to till the farm, the 
net produce of the five villages amounted to £5 for the 
year. Yet in the same year they paid to the inland 
revenue £73, and the village books showed that it was 
done by borrowing from the usurers at twenty-four per 
cent/' 

* Under the old-time system of native rulers, frequent wars, 
consequent on foreign invasions and internal race antagonisms, 
with accompanying famines and epidemic diseases, materially re- 
stricted the growth of the population of India. But under the 
conditions of peace that have been attendant during the last half 
century of British rule, the population of India has increased so 
rapidly that the limits of the agricultural capacity of the country, 
and the consequent means of subsistence for its people, seem to 
be approaching exhaustion; and one extraordinary drain upon the 
revenues of the Government in later years has been due to the wise 
creation of a national famine fund, to be used in cases of peri- 
odical emergencies due to failure of the crops, for the relief of 
multitudes who would otherwise perish by starvation. 



160 THE THEORY AND PRACTICE OF TAXATION. 

Mr. Keay further stated that " about seven years ago 
the Director-General of Statistics for all India published 
a book in which he stated that 40,000,000 of the people 
of India habitually went through life on an insufficiency 
of food. The Government of India wanted to be able to 
deny the statement, and they sent a confidential circular 
to the heads of departments and governors, in which they 
asked whether it was wholly or partially true, not that 
40,000,000, but that the greater proportion of the popula- 
tion of India suffered from an insufficiency of food; and 
they directed that men of ■ experience and judgment ? 
should be set to make the inquiries. The replies were 
contained in five confidential Blue-books. In the district 
of Eampoor twelve scattered villages were taken, with a 
total population of 2,000. Of these, 1,600 were cultiva- 
tors, and the remaining 400 were labourers, artisans, etc. 
It was found that, after deducting rent and the cost of 
cultivation, the cultivators had available for their support 
during the year sixteen rupees ( = £1 ) each, while the la- 
bourers had seventeen shillings a year each as the whole 
means of their subsistence. In another case it was shown 
that in a district having a population of over 1,000,000 
souls, 173 persons had only thirteen shillings a year each to 
live upon. In another district the official reports which 
were contained in Blue-books marked c confidential ' showed 
that in a large district nearly all the inhabitants had to 
live upon from three eighths to three quarters of the 
amount of grain which was ascertained to be the minimum 
that would support a healthy condition of life." * 

In the debate that ensued, Sir Eichard Temple, an- 
other ex-official of India, stated that " the calculations re- 
ferred to by Mr. Keay were not worth the paper they were 
written on or the breath with which they were uttered. 
The data upon which they were founded were suppositi- 
tious, and the deductions drawn from them were impos- 
sible. If they were true, the people of India would not 
be living at all, and the land would be of no market value. 
Yet, in another breath they were told that large sums of 
money were being advanced by local banks on security of 
the land." 

> Hansard, Fourth Series, vol. xxviii, pp. 1115-1120. 



LIGHT TAXATION IN INDIA. 161 

Mr. Keay said that he had quoted facts, and not 
opinions. 

Sir E. Temple retorted that " the supposed facts were 
no facts at all. All that these gentlemen could possibly 
know was that there were so many people on the ground, 
and that there were so many acres. The calculations men- 
tioned were snares and delusions. He would rather take 
certain general facts which could be tested. He could not 
undertake to say how a particular peasant family lived, 
but he knew what the general statistics were. He knew 
what the area under cultivation was, what the ratio of the 
increase of population was, what the expansion of trade, 
and what the exportation of food stuffs amounted to. It 
was said that the people of India were starving, although 
they were exporting grain to such an extent to England 
that they were seriously disturbing the prospects of Brit- 
ish agriculture. It was said that the people of India were 
sinking into poverty, although during the last decade they 
had shown the greatest increase of population recorded 
in the annals of the human race, the population having in- 
creased by 30,000,000 within ten years. ... No doubt the 
taxable capacity of the people was low, but, then, the taxa- 
tion was light. The poorer classes of the Indian people 
were the lightest taxed people in the world. He did not 
know exactly what the value of a peasant's produce might 
be, but he certainly knew what was the rate of wages 
among the poor, and it might be assumed that no man 
of any industrial capacity would make less than the cur- 
rent rate of wages. The poorest man in India could earn 
five rupees in a month, or sixty rupees in a year, and could 
any one say a poor man in India had to pay more than two 
rupees out of the sixty in taxation? ... A farm labourer 
in England earned, say, £35 a year. Would anybody say 
that he paid less or more than about £2 a year in taxation ? 
That being so, the poor man in England paid one seven- 
teenth of his income in taxation, while the poor man in 
India paid only one thirtieth of his. As to the general 
condition of the poor of India, how could any of those who 
were exporting food stuffs to such an enormous extent, and 
increasing the population so fast that one scarcely knew 
what would become of them all, be said to be dying of star- 
vation? This was the answer to be given to the specu- 



162 THE THEORY AND PRACTICE OF TAXATION. 

lations of Indian officials, and to the haphazard calcula- 
tions of amateur statisticians." * 

It was evident, therefore, from the outset that the 
natural conditions of India were as antagonistic to the 
adoption of what may be termed the civilized forms of 
taxation, as they were to the adoption of the Christian 
religion or English habits and language; and the problem 
to the new rulers for obtaining revenue for the support of 

* Hansard, Fourth Series, vol. xxviii, pp. 1121-1123. 

I have been asked if there is any explanation of the remark- 
able difference in opinion respecting the material condition of the 
people of India, recently expressed in the British House of Com- 
mons (and quoted) by two of its members, Mr. J. S. Keay and 
Sir Richard Temple. 

The explanation is probably to be found in the old story of 
the two knights who differed and quarrelled about the mottoes 
on a suspended shield, by reason of exclusively viewing it from 
opposite sides. India is a vast country, about half as large in 
land area (square miles) as the United States, exclusive of Alaska, 
and with a population of 287,000,000, so widely separated by caste, 
language, and religions that districts and villages that have been 
in close contiguity for long periods practically do not know or 
have intercourse with each other. In those portions of the country 
where the inhabitants are fairly intelligent, have learned to avail 
themselves of modern methods of agriculture, and have irrigation 
and transportation facilities, the production of foods and other 
commodities is so far in excess of any domestic demand, as to 
admit of such a large and constant export of grain stuffs as to 
threaten disturbance to the markets of Europe and the United 
States, besides textiles, fibres, dyestuffs, opium, oils and oil seeds, 
hardware, sugar, etc. In other districts of large population where 
the people still plough with crooked sticks, do not even recog- 
nise the value of manures or other fertilizers, are almost entirely 
lacking in facilities for transportation, and are so bound down 
by caste that it is difficult to induce them to emigrate to districts 
— like the Assam tea-producing sections — where labour is in good 
demand at comparatively high Avages — in such districts the in- 
crease of population so presses on its ordinary food supplies that, 
in case of any deficiency in the average crops, famine always 
ensues, and is only mitigated by the aid that comes through the 
extraordinary pension fund established and distributed by the 
British Colonial Government. The Duke of Argyll, who has been 
Secretary of State for India, tells us that " those only who have 
had any share in the government of India can know what the 
anxiety is arising out of such conditions of population " ; and 
extensive emigration is now advocated as the best remedial action 
that can be taken. Making allowance for different standpoints 
of observation, Mr. Keay and Sir Richard Temple were, therefore, 
both right in their conclusions. 



THE INDIAN BUDGET. 163 

their Government, without resort to the old forms of arbi- 
trary exactions or plunder, has accordingly always been 
one of great difficulty and delicacy; and the record of their 
experience in attempting to solve it constitutes an exceed- 
ingly novel and important chapter in economic history. 

Practically the only guide to them for the determina- 
tion and collection of taxes has been that of expediency. 
The imperial revenue of British India for 1893-94, stated 
in tens of rupees, was 60,193,000, making no allowance 
for the depreciation of silver. The value of ten rupees is 
very nearly equivalent to the British pound sterling, or 
five dollars gold coin of the United States. The ordinary 
revenue of India for the fiscal year 1893-94 was, therefore, 
about $300,968,000. The expenditures exceeded the re- 
ceipts of revenue to the extent of about $30,000,000, and 
represented an annual deficit to that extent.* 

The sources of revenue in India are mainly seven, but 
all of them, using the term in its ordinary signification, 
can not be characterized as " taxation." 

The first and most important of them is the taxation of 
land, with which the Asiatic people have been familiar 
from a most remote period, and the justice of which is least 
questioned by them. In fact, reliance upon land revenue 
was a feature of the Indian governments long before Eng- 
land had any control over India. The native rulers main- 
tained themselves for centuries by exacting shares of crops 
and cash contributions from cultivators of the soil. Tax- 
ation of land in India has therefore been retained, and not 
instituted by the present (British) Government. The en- 
tire land of India was nationalized centuries ago, and now 
as formerly (and as is the case in China) the primary title 
to all land inheres in the state or Government, and the 
cultivators of land pay a certain rent in respect to their 
tenancy. 



* " The gross revenue and the gross expenditure of India are 
very different things from the real revenue and real expenditure. 
In the gross revenue is included the entire receipts, and in the 
gross expenditure is included the entire expenditure of the whole 
railway system of India, the whole of the canal system, and of 
the irrigation works." — Speech of Mr. H. Fowler, Secretary of 
State for India, introducing into Parliament the Budget for India, 
August 15, 1894. 



164 THE THEORY AND PRACTICE OP TAXATION". 

There are two methods of land assessment in India, 
which involve a somewhat curious history. A hundred 
years ago, under the administration of Lord Cornwallis, 
an arrangement or treaty was made, which then and for- 
ever fixed the rate which the tenants of land in the gov- 
ernment of Bengal — representing about one fourth of the 
present area of British India — should pay the state for 
their occupancy, and which then was regarded as a fair 
rental; and although since that arrangement was made, 
the land in question, owing to increased population, new 
industries, and state expenditures on roads and railroads, 
has greatly increased in value, and yields to the represent- 
atives of the primary lessees threefold or more rental, the 
British Government has to this day strictly respected its 
treaty and fulfilled its agreement. The fortunate con- 
trollers of the land thus rented — the zemindars, or native 
capitalists — having, however, improved their opportunities 
to oppress (rackrent) their subtenants, the Indian Govern- 
ment, since 1885, has undertaken to remedy this evil, and 
with a considerable degree of success. Land throughout 
India is divided into provinces, and the provinces them- 
selves are divided and subdivided in such way that taxa- 
tion in each locality is under the direction of an officer 
familiar with all the matters that must be taken into con- 
sideration in taxing justly. A multiplicity of rights in 
the nature of land tenures are recognised in the assess- 
ments, and heed is also paid to the character of the lands 
and the purposes to which they are devoted. No increase 
of rent is ever allowed upon improvements made by the 
tenant himself, or upon improvements arising from the 
expenditure of public money; so that, in the opinion of 
those who have given personal attention and study to this 
subject, the English officials have finally established a land 
revenue system in India on a just basis. 

The expense of collecting the land tax is heavy. In 
the so-called " village assessments " the collection is made 
by the local authorities. In other cases the large pro- 
prietors and notables pay the Government levies and re- 
coup themselves by including their payments in the 
rents charged to their subtenants — the ryots, or peasantry. 
While the revenues from this source are very reliable, they 
are not regarded as capable of much further expansion. 



THE INDIAN TAX ON SALT. 165 

The gross receipts — imperial, provincial, and local — from 
the annual rental of tax on land in all India was officially 
returned for 1893-'94 at 25,589,600 Ex. (or about $123,- 
000,000), representing an average rent or tax of $1.53 per 
acre. About nine tenths of the entire population of India 
belong to the agricultural class. 

Second in order of importance of the sources of Indian 
revenue is the tax on salt, which, since its discontinuance 
in France in 1789, has ceased to be an excise or internal 
tax in European countries, with the exception of Italy, 
and which finds its warrant and justification at the pres- 
ent time in India in the fact that, apart from the land 
tax, there is no other method so practical and economic 
of compelling the masses of its people to directly con- 
tribute anything for the support of the Government, in- 
asmuch as the consumption of salt is a necessity for every 
individual. A very large proportion of the salt required 
for Indian consumption is imported — -chiefly from Eng- 
land — and the total amount on which taxes are collected 
is about 500,000 tons, or 3,000,000 barrels. The rate of 
tax is two and a half silver rupees (nominally $1) per 
maund of 82.28 pounds. Previous to 1879-'80 the Gov- 
ernment maintained, at great expense and popular annoy- 
ance, a customs line twenty-five hundred miles in length, 
to keep salt produced in the states under native rule from 
entering into British territory without the payment of a 
heavy duty. This barbarous system, necessitating the con- 
stant employment of a large force of native constables, 
known as chuprassies, invested with inquisitorial powers, 
was abolished at the time above named, by entering into 
treaties with the native states possessing salt sources, in 
virtue of which British officials are permitted to supervise 
their salt works and tax their product before it left them. 
But this could be only accomplished by paying the states 
concerned a satisfactory compensation for this concession. 
The receipts of the imperial (Indian) revenue from the 
salt tax for 1894 were 8,228,000 Ex. (tens of rupees), or 
nominally about $41,000,000. The present average annual 
consumption of tax-paid salt by the people of India has been 
officially estimated at about ten and three fourths pounds 
per head, and the average annual burden of the tax on 
each Indian family of five persons at one rupee and a quar- 



166 THE THEORY AND PRACTICE OF TAXATION. 

ter, or bd. (ten cents); and in considering this tax it is 
desirable to bear in mind that there is no direct taxation 
in India either on tobacco or sugar, so that the salt tax is 
the only direct tax that the Indian peasant need pay, 
unless he indulges in alcohol or narcotics — the land assess- 
ment being regarded as in the nature of rent. 

As the price of salt, by reason of the tax, is somewhat 
higher in India than in most other countries, the ques- 
tion as to its effect upon its population is one of high 
social and sanitary interest, in respect to which authorities 
differ. By some * it is contended that the consumption 
of this prime necessity is thereby greatly restricted, and 
that, much disease, both of men and animals, is thereby 
engendered; and the trade in salt fish, which might sup- 
ply a cheap and abundant article of food, is greatly ham- 
pered. Others assert that " the poorer classes do not feel 
aggrieved or complain about it "; that " as a rule the peas- 
antry do not stint themselves on account of it " ; and that 
" no one has ever taken exception to the tax as it stands 
but the European grievance-monger in the country." But, 
be this as it may, all are agreed that it would be very diffi- 
cult to raise a revenue equivalent to that derived from 
the taxation of salt by any other method. 

The third largest source of imperial revenue in India 
I from the Government monopoly of the production and 
sale of opium; and the annual receipts from which, al- 
though at one time in excess of $40,000,000, have of late 
years greatly diminished, and were ofnciallv reported in 
1894 as 6,627,571 Ex. ($33,137,855). As the opium prod- 
uct of India is sold mainly to China and the Straits Set- 
tlements, and as the export taxes embodied in its price 
are collected from the people of these countries, they can 
not, therefore, be regarded as a fiscal burden upon the 
people of India. 

The method of collecting the revenue from opium is 
substantially as follows: No person in British India may 
cultivate the poppy, from which the drug is derived, with- 
out a license from the Government; and every cultivator 
is bound to sell the crude product of his crop to the Gov- 

* Wilson's Resources of Modern Countries. London, Long- 
mans, 1878. 



OPIUM AND EXCISE IN INDIA. 167 

eminent at certain factories, where it is manufactured into 
the opium of commerce. A portion of the manufactured 
opium is retained for consumption in India, and distrib- 
uted through venders licensed by the excise department. 
The remainder is sold monthly by auction to merchants, 
who export it; and on this exportation a duty is levied, 
from which the imperial revenue from this source mainly 
accrues. Opium produced in the native states of India 
pays the export duties when it passes into British territory. 
The Government prescribes rules for the cultivation of 
the poppy, and the manufacture, possession, transport, im- 
port (from native states) or export, and sale of opium; and 
any contravention of such rules is subject to stringent pen- 
alties. The product of the poppy illegally cultivated and 
opium made the subject of an offence against the law are 
liable to confiscation, together with the vessels and pack- 
ages in which it is found and the animals and conveyances 
used in transporting it. Notwithstanding all these pre- 
cautions, the price of opium consumed in the country — 
about one-eleventh part of the whole — is more or less in- 
fluenced by illicit supplies; so that the Government monop 
oly of this article is fully effective only in respect to the 
export trade. But even under such conditions, opir 
the most valuable of all the native exports of India ; an 
annual value of the poppy crop, including the poppy 
and the poppy oil produced from them (neither of which 
yield opium), or the annual money return, apart from the 
Government revenue, that the people of India get out of 
the crop, is estimated at about $70,000,000. 

The fourth source in order of importance of the In- 
dian revenue is from the so-called excise, which embraces 
licenses and distillery fees, licenses for the sale of liquors 
and drugs, and rent of "Toddy" trees— 364,624 Ex. 
($1,722,120) in 1894; duty on opium consumed in India — 
732,200 Ex. ($3,661,000) in 1894; fines, confiscations, and 
miscellaneous; total excise revenue for 1894, 5,388,573 Ex. 
($26,942,865). The incidence of this form of taxation 
falls mainly upon Europeans and " Eurasians " (a modern 
name given to persons of mixed European and Indian 
blood). In this connection, the Imperial Secretary for 
India, in his budget speech (1894), stated that, " whereas 
in England there was a licensed shop to sell intoxicating 



168 THE THEORY AND PRACTICE OF TAXATION. 

liquors to every 106 of the population, in India there was 
only one for selling liquor and opium to every 2,148 of the 
population." 

Fifth. The stamp system of taxation in India yielded 
a revenue in 1894 of 4,509,355 Ex., or $22,546,665. Al- 
though somewhat heavy in the aggregate, the system is 
not unpopular, for the reason that it is practically un- 
known to the mass of the people; the largest items of col- 
lection being returned, in 1894, under the heads of " court 
fee stamps " ($15,317,315) and " commercial and other 
stamps" ($5,841,995). 

Sixth. " Provincial rates." Under this title are in- 
cluded a variety of levies, differing in name, character, 
and rate in different places, and for the furtherance of 
special objects — as for paying the expenses of hospitals, 
schools, and police service; for the maintenance and con- 
struction of roads and irrigating facilities, the adminis- 
tration of wards' estates, and the like. The revenue re- 
ported from this source in 1894 was 3,514,571 Ex. ($17,- 
572,855). 

Seventh. Until within a very recent period (1894) the 
customs system of India — taxes on imports and exports — 
was one of the simplest in the world. No other coun- 
try than the United Kingdom imposed duties on so few 
descriptions of merchandise — mainly on alcoholic liquors, 
salt, mineral oils, arms, ammunition, and a few spe- 
cial articles of food and drink. Export duties were also 
levied on rice and some other forms of grain. The ag- 
gregate receipts from customs fees, wharf rents, etc., in 
1894, were 1,682,373 Ex. ($8,411,865). In March, 1894— 
the commencement of the Indian fiscal year — the Council 
of India, acting under the constraint of financial exigen- 
cies, imposed duties on almost all kinds of imports, cotton 
yarns and piece goods — constituting about one third in 
value of the entire imports by sea — excepted. Subse- 
quently a uniform duty, equivalent to three and a half per 
cent ad valorem, was imposed on all imported cotton goods, 
and a corresponding excise tax on all the competing prod- 
ucts of Indian mills — yarns and other cotton fabrics, the 
product of Indian hand labour, being exempted. "Ex- 
cept the weaving of fancy and highly elaborated clothing, 
which is largely conducted in and around Benares and in 



INCOME TAX IN INDIA. 169 

a few other districts, the handloom manufacture of cotton 
in India is mainly a spare-time industry, and is not pro- 
fessional/' 

Other important sources of internal revenue in India 
are the receipts from the sale of the products of the for- 
ests owned or managed by the Government — in the form 
of timber, firewood and charcoal, bamboos, sandalwood, 
grass, and other products — the total of which for 1894 
was 1,723,022 Ex. ($8,615,110). 

An annual tribute or contribution from a large num- 
ber of native and mainly petty states of India toward the 
support of the Imperial Government was reported for 1894 
at 774,337 Ex. ($3,871,685). On the other hand, the 
Imperial Government grants annual allowances, or pen- 
sions, to the native hereditary rulers of such states or their 
families, the aggregate of which for the fiscal year 1894 
was 508,443 Ex. ($2,542,215).* 

Income Tax. — The experience of the (British) Indian 
Government in attempting to raise revenue from the tax- 
ation of incomes, or by an income tax, is exceedingly in- 
teresting, and ought to be most instructive to the people 
of other countries. As a rule, the annual revenues of the 
Government of India do not and for a lengthened period 
have not equalled its annual expenditures, and the in- 
crease in the public debt of the country in recent years 
has accordingly been very considerable.! The major part 
of this debt, however, has been incurred for the construc- 
tion of ordinary roads and railways, which in turn have 
not been unremunerative, and have made possible a large 
export sale of wheat and other commodities, which before 
their construction was impossible. The debt, or expendi- 
tures resulting in debt, has therefore contributed greatly 

* The British Government has respected the possessions of the 
native chiefs of India, and about one third of the country still 
nominally remains in the hands of its hereditary rulers. These, in 
return for their maintenance and protection by the Imperial Gov- 
ernment of India, contribute annually from their resources a com- 
paratively small sum for its support. The independent gross an- 
nual revenue of these so-called " feudatory " states is reported to 
amount to about £6,000,000 ($30,000,000), and their permanent 
military forces at " something like 300,000." 

f For the year which closed on March 31, 1896, there was an 
estimated surplus of about 9,500,000 rupees. 
12 



170 THE THEORY AND PRACTICE OF TAXATION. 

to the welfare of the people of India. At the same time 
the demand and necessity for constantly increasing ex- 
penditures, continually confront the Government with the 
most difficult problem of how to increase its revenue — a 
problem that very recently has been threatened with in- 
creasing embarrassment, owing to the position of not a 
few people in England, who, with more of sentiment than 
discretion or knowledge, have opposed the continuance of 
the present governmental monopoly of the production and 
sale of opium. A large increase of taxation in any form 
is regarded as not feasible in India; not so much because 
of an unwillingness on the part of the people to pay — for 
they are accustomed to pay all dues which they regard as 
fairly claimable by the sovereign power, and more espe- 
cially when the demand is accompanied with control of 
force — but by reason of the extreme poverty and conse- 
quent actual inability of the masses of the people to pay. 
Experience has, moreover, shown that the natives of India 
are particularly opposed to all forms of direct taxation, 
other than on land, and more especially to taxes on houses, 
vehicles, and trades; and so extreme are their prejudices 
in this respect that any new levies of such character are 
only imposed by the Government with the greatest caution. 

Something in the way of an income tax, exempting all 
incomes derived from agriculture, was probably imposed 
by some of the old-time native rulers of India. But the first 
attempt on the part of the British Legislative Council of 
India to revive such a form of direct taxation was made in 
1860. What followed is thus forcibly set forth in a speech 
by Mr. Hope, before the Council, in January, 1886 : 

" Instead of a native model for direct taxation, soft- 
ened and adapted to our circumstances, we unfortunately 
set up that of the income tax as it was in force in England. 
To get direct taxation into good working order, even after 
a suitable model, would have been a work of time and care, 
in the absence of any record of the names and resources 
of householders. But what, except failure, could attend 
a sudden call on relatively ignorant and unlettered mil- 
lions, at short notice, to assess themselves, or prove right 
of exemption, to send in elaborate returns and calculations, 
and to understand and watch their own interests under 
the system of notices, surcharges, claims, abatements, in- 



INCOME-TAX ASSESSMENTS. 171 

stalments, penalties, and what not, consequent thereon? 
Necessarily there followed a long train of evils. An army 
of tax assessors and collectors temporarily engaged could 
not be pure. They were aided by an army of informers, 
actuated by direct gain or private animosity. Frauds in 
assessment and collection went hand in hand with extor- 
tion in return for real or supposed exemption. Inquisi- 
tion into private affairs, fabrication of false accounts where 
true ones did not exist or were inconvenient, acceptance 
of false returns, rejection of honest ones, unequal treat- 
ment of the similarly circumstanced — all these more or 
less prevailed. The tax reached numbers not really liable, 
for zemindars illegally recovered it from tenants and mas- 
ters from servants, while underlings enriched themselves 
by the threat of a summons. 

" Subsequent acts in 1862, while affording relief in 
some respects, practically stereotyped many inequalities 
and heartburnings. In later years, the system of assess- 
ment by broad classes was an improvement on the earlier 
complications, but the advance of local officers toward 
equitable assessment was perpetually being cancelled by 
the alterations in rate and liability, which I next notice. 

" Eenewed direct taxation in British India thus made 
a false start, from which it has never recovered. Possibly, 
with time and care, a great improvement might have been 
effected, if the law had remained unaltered. But, un- 
luckily, with its too English form came the idea that the 
tax was to be, as in England, a convenient means of recti- 
fying budget inequalities, and a great reserve in every 
financial or national emergency. In consequence of this 
idea, incomes between Es. 200 and Rs. 500, which had 
been taxed at two per cent in 1860, were exempted in 1862, 
the four-per-cent rate was reduced to three per cent in 
1863, and the whole tax was dropped in 1865. In 1867 
it reappeared in the modified form of a license tax, at the 
rate of only two per cent at most, but reaching down again 
to incomes of Rs. 200. In 1868 it became a certificate tax 
at rates a fifth lower, and again commencing with a Rs. 
500 limit. In 1869 it became once more a full-blown in- 
come tax at one per cent on all incomes and profits of Rs. 
500 and upward. In the middle of the same year it was 
suddenly nearly doubled. In 1870 a further rise to fully 



172 THE THEORY AND PRACTICE OF TAXATION. 

three and an eighth per cent occurred; but with better 
times the rate fell in 1871 to one and one-twenty-fourth 
per cent, with a limit of Rs. 750, and in 1872 the limit 
was further relaxed to Rs. 1,000 and upward. In 1873 
came a second period of total abolition, to be succeeded 
from 1877 to 1878 by the new series of acts. Along with 
the changes in rate and incidence just described came 
changes in name, form, classification, and procedure. With 
one object or another, twenty-three acts on the subject 
have been passed since 1860." 

An income tax at a low rate, at present existing in 
India, grants an exemption of 500 rupees on all incomes, 
and exempts from taxation all income from the ownership 
Of land or the sale of the products of land, and from prop- 
erty solely employed for religious or charitable purposes. 
It is thus assessable mainly on salaries, pensions, the in- 
come of companies, and of the ordinary trades and profes- 
sions. Its existence is the cause of considerable friction 
with the officials who administer it, and constant appeals 
from their decisions are made from all parts of the coun- 
try. In fact, this tax, at its present low rate, is universally 
detested, and the receipts from it are comparatively so 
inconsiderable— only 1,717,627 Rx. ($8,588,135) in 1894 
— that it may be regarded as a fiscal failure. Its whole ex- 
perience in India furthermore reaffirms what is worthy of 
being regarded as an economic principle, namely, that 
when an income tax ceases to be regarded as generally op- 
pressive it ceases also to be remunerative to the state. 

One other point in this connection is especially worthy 
of notice. For a long period of years India has been char- 
acterized as a " sink-hole " of the precious metals, or, in 
other words, there has been for many years a continuous 
flow of the precious metals — gold and silver — into India, 
where they have to a large extent disappeared, by burial 
under ground for the purpose of hoarding and conceal- 
ment.* The motive for this under the Mogul and native 
rulers was unquestionably to escape direct plunder or con- 
fiscation; but under British rule these hoards, amounting 
to many hundreds of millions, are not taxed, mainly by 

* While this is still true in a measure as to silver, the move- 
ment of gold in India's commerce has undergone a change. The 



BURDEN OF INDIAN TAXATION. 



173 



reason of their inaccessibility, and partly by the recog- 
nised policy of the Government to avoid direct taxation 
of active capital, and encourage, by making safe its em- 
ployment, the tendency of these buried treasures to come 
to light and enter into the channels of trade. And that this 
policy has been a wise one is shown by the fact that within 
recent years there has been an increasing disposition on 
the part of the Indian owners of concealed treasures — espe- 
cially the Indian princes or rajahs — to withdraw them 
from their hoarding places and invest them in Govern- 
ment bonds, or other desirable, interest-bearing securities. 
In the year 1893 the burden of taxation on the people 
of India, inclusive of the revenue derived from the rent of 
land, was officially estimated at two rupees and four annas, 
or nominally less than fifty cents per head; or, exclusive 
of the revenue from land, at about twenty-three cents per 
head — a rate relatively much lower than the taxation of 
England; so that, if the taxable ability of the people of 
India is low, the poorer classes of that country, it is 
claimed, are more lightly taxed than the poorer classes of 
Europe, or even of the United States. Before England 
assumed dominion in India the system of exaction of her 



imports and exports of treasure, on private and government ac- 
count, have been as follows (in tens of rupees) : 





GOLD. 


SILVER. 


YEAR. 


Import. 


Export. 


Import. 


Export. 


1886-'87 

1887-'88 

1888-'89 

1889-90 

1890-'91 

1891-'92 

1892-'93 

1893-'94 

1894-'95 

1895-'96 

1896-'97 


2,833,558 
3.236,053 
3,119.088 
5,071,027 
6.500.832 
4,118,929 
1,781,789 
3,146,530 
1,756,280 
5,028.269 
4,491,179 


656,493 

243,572 

305,154 

455,724 

864,660 

1,705,137 

4,594,472 

2,505,284 

6,730,374 

2,503,317 

2,200,141 


8,219,761 

10,589,803 

10,725,872 

12,388,474 

15,433,654 

10,603,733 

15.228,021 

15,314.726 

7.824,927" 

8,338,716 

8,593,384 


1,064,023 
1,361,052 
1,479,193 
1,450,598 
1,258,518 
1,581,549 
2,364.452 
1,594,908 
1,495,698 
1,756,494 
2,737,355 



It was believed by many that the closing of the mints to silver 
would attract gold to India; but this has not been the event. A 
commission of the English Parliament on Indian currency has re- 
cently (1899) presented a report in favour of the gold standard. 



174 THE THEORY AND PRACTICE OF TAXATION. 

native rulers was so perfected that they were assured of the 
very last penny that could be taken from the ryots, or 
peasantry, without stripping them of everything; leaving 
to the tenant class little more than the privilege of living. 
To-day the existing system of taxation in India is con- 
ceded to be at least eminently just. To-day it is generally 
admitted that there is no government in the world whose 
administration is more honestly conducted, and which is 
now doing more for the material good of the governed, than 
the present British Government of India. And herein is 
to be found the secret of England's success in ruling the 
vast congeries of people of different races, languages, and 
religions, known to us as India. 

The consideration of another matter of recent occur- 
rence and of the highest economic and social interest and 
importance, appropriately finds place in any discussion of 
the tax system of British India; more especially because 
it sets forth an attempt, founded on an unwarranted senti- 
ment, indirectly to impose a large additional burden of 
taxation on the people of that country. As already pointed 
out, a present annual receipt of some $33,000,000 of reve- 
nue from the monopoly of the production and sale of 
opium, the incidence of which does not fall upon the In- 
dian people, constitutes an important factor in this system. 
Acting on the assumption that the continued use of this 
drug, as a narcotic and stimulant, is in the highest degree 
injurious to the consumer — worse even than the continued 
use of alcohol — and especially demoralizing and destructive 
to the people of China, who are the purchasers and con- 
sumers of the major part of the opium product of India, 
a body of public opinion has in recent years grown up in 
Great Britain whose representatives hold that it was dis- 
graceful and positively wicked for a people professing to 
be moral and enlightened to engage in or sanction the 
business of producing and supplying opium; and that it 
is the duty of their Government to at once interfere and 
put an end to it. And in recognition of this public opin- 
ion, and in deference to a numerously signed address to 
the Crown, the British Government, in September, 1893, 
created a commission, consisting of nine eminently quali- 
fied persons, including two natives of India of high posi- 
tion and unconnected with the Government, and an emi- 



THE OPIUM COMMISSION. 1?5 

nent physician, to inquire into and fully report on this 
whole subject. The first report of the commission, pub- 
lished in 1894 and presenting simply the evidence taken 
in England, was an exhibit of the most interesting but 
utterly antagonistic and contradictory opinions and evi- 
dence. For the petitioners, sixteen witnesses, mainly mis- 
sionaries, medical men connected with missions and resi- 
dents for considerable periods in India and China, were 
called ; and nearly all of these, as the result of personal 
experience and observation, testified in the most positive 
manner, and in consonance with popular opinion, that the 
use of opium physically, morally, and socially is highly 
deleterious, and ought to be discouraged, and if possible 
absolutely prevented. Considered by itself this testimony 
would seem to be conclusive and incapable of refutation. 
But, on the other hand, an equal number of witnesses — 
English officials qualified by education, lengthened resi- 
dence in India and China, and exceptional opportunities 
for observation, civil servants, medical men of the highest 
reputation connected with hospital and sanitary work and 
with the army in every part of India — gave unqualifiedly 
contradictory evidence, which may be summed up as fol- 
lows : That opium has been used for centuries in India and 
China, without any extensive deleterious influence on the 
population ; that the " Sikhs " of India, who in point of 
physical structure and health are claimed to be the finest 
people in the world, and whose religion forbids the use 
of tobacco, are habitual users of it ; that while the excessive 
use of opium is unquestionably in a high degree deleterious, 
it is far less so than the excessive use of alcohol ; that the use 
of opium in India and China is comparatively much less 
than the use of ardent spirits in Great Britain ; that the ex- 
cessive use of it, as by the so-called " opium sot," is the re- 
sult very largely of the circumstance that the miserably 
poor afflicted with disease in India, China, and other Asiatic 
countries where there is no intelligent medical treatment, 
and little or no hospital service, resort to it as the only 
means of lessening their sufferings; that so far from the 
allegation being true that the supply of opium by India 
to China is disastrous in the highest degree to the people 
of the latter country, the fact is that the use of the Indian 
product, owing to its higher quality and price, is almost 



176 THE THEORY AND PRACTICE OF TAXATION. 

wholly restricted to the wealthier classes of China; that 
the cultivation of the poppy for the production of opium 
is very general in China, and to such an extent that one 
single province of the empire annually produces more 
opium than the entire export of India; and, finally, that 
any attempt on the part of either the Indian or Chinese 
Government to interfere with the production and sale of 
opium, with a view of restricting or preventing its con- 
sumption, would be utterly futile, and in the case of the 
former country would undoubtedly lead to revolution. 

One witness, Surgeon-General Sir William Moore, 
stated as the result of thirty-three years' service and ob- 
servation in India, that opium-smoking is practically 
harmless, and opium water not only harmless, but bene- 
ficial in moderation, and a prophylactic against malarial 
fever. 

The following circumstance was also regarded as sub- 
stantiating this position: During the years 1893-'94 the 
island of Hong-Kong, on the Chinese coast, was ravaged 
by a pestilence, in the nature of a filth disease, of great 
malignity. Since its abatement it is claimed, with an ac- 
companying array of evidence, that the opium smokers 
and eaters were almost without exception exempted from 
the pest. 

Very naturally, also, the (British) Indian civil-service 
officials, holding the view that the large revenue derived by 
the Government from the monopoly of the production and 
sale of opium is in no sense a tax burden upon the Indian 
people; and recognising also the great difficulty (but abso- 
lute necessity) of making good the deficiency consequent 
upon the abrogation of such revenue through new and addi- 
tional taxation upon the people, were unanimously of the 
opinion that any change in the existing system in respect 
to opium would be in the highest degree inexpedient and 
unwarranted. When the question was put to Sir John 
Strachey, who in the course of thirty-eight years of Indian 
civil service has filled almost every post, from the most 
subordinate to the governorship of provinces and member- 
ship of the Government of India, how he accounted for the 
great contrariety of belief in respect to the opium ques- 
tion, he made answer as follows : 

" The ignorance that prevails in this country [Eng- 



FOOD OF THE INDIAN PEOPLE. 177 

land] regarding everything Indian is enormous, and is not 
confined to those whom we expect to be ignorant, but ex- 
tends to the most highly educated classes. It extends to 
all Indian subjects — history, geography, the conditions and 
habits of the people, the constitution of the Government 
— in fact, everything. I will give an illustration which 
always seems to me to have a useful bearing on this opium 
question. Mr. Buckle, in his History of Civilization, de- 
rives all the distinctive institutions of India and the pecul- 
iarities of its people from the fact that the exclusive food 
of the natives of India is rice. It follows from this, he 
tells us, that caste prevails, that oppression is rife, that 
rents are high, and that customs and laws are stereotyped. 
I have no doubt that if Mr. Buckle had been asked, he 
would have said that the same cause accounted for the 
consumption of opium in India. I sometimes ask my 
English friends, when they talk about opium, what they 
suppose to be the ordinary food of the people of India. 
The almost universal answer, perhaps with an air of dis- 
pleasure that they should be asked such a foolish question, 
is that of course it is rice. I believe that nine tenths of 
the educated men and women of this country believe this 
to be true. When they have not learned such an elementary 
fact as this, that throughout the greater part of India 
rice is no more the ordinary food of the people than it is 
in England, how can we be surprised if they do not know 
the truth about opium? We who have spent our lives in 
India are not all fools or impostors. When I hear the 
Government of India charged with the abominable wicked- 
ness of poisoning its own subjects, and millions of Chi- 
nese also, for the sake of filthy lucre, there is only one 
reason that prevents me from being filled with indigna- 
tion, and that is that I know that these charges are the 
offspring of ignorance alone. Unfortunately, this does not 
make them less serious, for, of all enemies to human prog- 
ress, ignorance is the most formidable, and is especially 
formidable when, as in this present case, it is combined 
with honest enthusiasm and an anxious desire for what 
is right." 

The commission, having finished its investigations in 
England, visited India, and there renewed them in nearly 
every place of importance for obtaining information. It 



178 THE THEORY AND PRACTICE OF TAXATION. 

examined seven hundred and twenty-three witnesses, of 
whom four hundred and sixty-six were natives of India 
or China, including Government officials, planters, land- 
owners, traders, members of the professional classes, espe- 
cially physicians, missionaries of nearly every denomina- 
tion, military officers and private soldiers, and the chiefs 
and officials of the native states. 

As a result of this elaborate inquiry, the commission, 
by a majority of eight to one, pronounced clearly and un- 
hesitatingly in favour of the maintenance of the existing 
system of opium production and sale of opium in India; 
finding no evidence of extensive moral or physical de- 
moralization arising in India from the use of the drug, 
or of any desire on the part of its people or of the Chinese 
Government to prohibit it. 

The commission also decided, in respect to the effect on 
the finances of India of a prohibition of the sale and ex- 
port of opium, that, " taking into consideration the com- 
pensation payable, cost of the necessary preventive meas- 
ures, and the loss of revenue that would result from a 
policy "of prohibition, the finances of India are not in a 
condition to bear the losses that such a policy would en- 
tail." 

The testimony of the missionaries in India before the 
commission was not unanimous. That of the members 
of the American Methodist Episcopal and Canadian Pres- 
byterian commissions, and the representatives of the Pres- 
byterian and Baptist missions, was in favour of prohibition. 
On the other hand, the views of the Episcopal bishops and 
clergy of Calcutta and Lucknow, and of the Eoman Catho- 
lic Archbishop of Calcutta, were adverse to prohibition. 
Several of the former, however, frankly admitted that the 
evils of the opium habit, deplorable as they undoubtedly 
are, have been grossly exaggerated, and the good that it 
accomplishes has been but little recognised. 

The use of opium in India and China is as much a 
natural habit as the use of alcohol among Western nations. 
It has been practised in those countries for centuries, and 
it would seem impossible by legislation, and especially by 
the legislation of an alien nation, to do anything more than 
control the more manifest evils resulting from it. A policy 
of rigid restriction of the use of opium would unquestion- 



THE OPIUM HABIT. 179 

ably be a substitution of the use of opium by alcohol; and 
all the evidence given before the commission as to the evils 
arising from the opium habit showed, that as a source of 
social disorder, organic disease, insanity, and suicide, opium 
is not to be compared with alcohol.* 

* For the full details of this most interesting inquiry, whether 
regarded from an economic, social, or medical point of view, refer- 
ence is made to the First Report of the Royal Commission on 
Opium, with minutes of evidence and appendices, presented to 
Parliament in 1894, and to two final reports, Parts I and II, with 
historical appendices, etc., presented to Parliament in 1895, after 
the return of the commission from its visit to India. 



CHAPTER VIII. 

TAXATION IN SWITZERLAND. 

Any review of the notable experiences of the Govern- 
ments of different countries in raising revenue for their 
maintenance and support would be incomplete if it failed 
to notice those of Switzerland, where the conditions in- 
volved are, to say the least, exceptional, or different in 
many respects from those of any other government or 
country. These conditions, stated briefly, are as follows : 

A country of comparatively small area — 15,964 square 
miles— -and in one small part uninhabitable and practically 
inaccessible, with a population in 1894 of about 3,000,000 
(2,986,848). These conditions may be best appreciated 
by the following comparisons : Of the four countries that 
are immediately contiguous to and bound Switzerland, 
France has an area of 204,092 square miles and a popu- 
lation of 38,343,192; Germany, 208,738 square miles and 
a population of 49,428,470; Austria-Hungary, 264,264 
square miles and 40,810,916 population; and Italy, 114,410 
square miles and 29,699,785 population. A comparison 
with some of the States that in the aggregate constitute 
the United States also affords the following results: The 
whole of Switzerland has about one third of the area of 
the State of New York and one half of its population ; one 
sixteenth of the area of the State of Texas; less than one 
third of the area of the State of Georgia, etc. 

Of the total area of Switzerland, only seventy-two per 
cent, or an area about as large as the States of Massachu- 
setts, Connecticut, and Rhode Island combined, is classed 
as habitable and productive; and the soil of this portion 
does not yield sufficient for the support of more than two 
thirds of the population, a large percentage of the re- 
maining third rinding employment and support mainly in 
very small industries, occupying only a family. The posi- 
tion taken by Switzerland in the trade and commerce of 
180 



FOREIGN TRADE OF SWITZERLAND. 181 

the world is most remarkable, especially when the vari- 
ous natural obstacles are considered — such as the absence 
of raw material for her industries, asphalt being the only 
raw mineral product of which the export exceeds the im- 
port — the costly and difficult means of transport, and the 
restrictive customs established by neighbouring and bound- 
ing countries. Thus, a comparison of the exports of dif- 
ferent countries, in proportion to their population, of 
manufactured products to the world's markets, shows that 
Switzerland takes the lead in respect to values; namely, 
$37 per capita per annum. Of other countries, the Nether- 
lands comes next to Switzerland, with a present annual 
export valuation of manufactured products of $35.60 per 
capita; then England, $24.60; Belgium, $23.40; Germany, 
$11.50; France, $11; Sweden, $7; Norway, $4.60; and, 
finally, the United States, with $3.40. In respect to com- 
parative aggregate valuations, Great Britain furnished 
nearly thirty per cent of such exportations ; Germany 
nearly eighteen per cent; and France thirteen per cent, 
making about sixty per cent for these three countries. 
The proportionate valuation of the United States for 1894 
was 12.16 per cent.* 

The principal articles of Swiss exportation are cotton 
fabrics (printed and embroidered), silks (especially rib- 
bons), food stuffs, cheese and condensed milk, clocks and 
watches, machinery and carriages, works of art, mineral 
waters, straw goods, etc. 

The leading characteristics of the people of Switzerland 
are the habits of persistent industry, the practice of rigid 
economy (in great part by reason of necessity) in their 
expenditures, a degree of patriotism that is everywhere 
exhibited and acknowledged, and a remarkable diversity 
of language. " Three tongues have existed side by side 
in Switzerland for centuries, and their individuality is 
recognised in the Federal Constitution, by providing that 
laws shall be printed in all of them, and that in the dis- 
tribution of certain offices regard shall be paid to the lan- 
guage of the people for whose benefit the official serves." f 

* Address of Theodore Search, President of the National Asso- 
ciation of American Manufacturers. 

t State and Federal Government in Switzerland. By John 
Martin Vincent. Johns Hopkins Press, Baltimore, 1891. 



182 THE THEORY AND PRACTICE OF TAXATION. 

Education is compulsory; primary education is free, and 
the percentage of illiteracy is small — almost nothing. 
Their standard of morality may be indicated by the cir- 
cumstance that about five per cent of the births are re- 
ported as illegitimate. 

The present political organization of Switzerland close- 
ly resembles that of the United States, but is far better 
entitled to the claim of being free and democratic, and in 
this respect is probably typically superior to any other 
Government that exists or ever has existed.* Under the 
present Constitution, adopted in 1874, and which prac- 
tically reaffirmed previously existing conditions, Switzer- 
land became a federated republic, whose proper and official 
designation is the " Helvetic Confederation/ 5 consisting of 
twenty-two Cantons or States; although the division of 
three Cantons into two demi-Cantons makes the total num- 
ber of federative units twenty-five. The several Cantons 
elect a Federal Assembly (Nationalrath) and a States Coun- 
cil (Stdnderath) in which are vested the parliamentary gov- 
ernment of the country. The first consists of members 
chosen every three years in the ratio of one for every twenty 
thousand of the population, the election being direct, with 
the right of participation by all citizens who have attained 
the age of twenty years. The second is composed of forty- 
four members, two from each Canton irrespective of its 
size, the mode of their election and the term of their mem- 
bership being left exclusively to the respective Cantons. 
Clergymen are disqualified as candidates, though they are 
eligible for election to the Federal Assembly. The chief 
executive authority is deputed to a Federal Council 
(Bundesrath) of seven members, elected for three years 
by the Federal Assembly, and who during their term of 
service can not hold any other office in the Confederation 
or Cantons, or engage in any calling or business. The 

* " The county, State, and Federal Governments (of the United 
States) are not democracies. In form they are quasi-oligarchies 
composed of representatives and executives, but in fact they are 
frequently complete oligarchies, composed in part of unending 
rings of politicians that directly control the law and the offices, 
and in part of the permanent plutocracy who purchase legisla- 
tion through the politicians." The Initiative and Referendum in 
Switzerland. By J. W. Sullivan. Nationalist Publishing Co., New 
York, 1893. 



THE SWISS CONSTITUTION. 183 

President and the Vice-President of the Federal Council 
are the first magistrates of the Confederation. Both are 
elected by the Federal Assembly for the term of one year, 
and are not eligible for the same office until after the 
expiration of another year. The salary of the President 
is three thousand dollars per annum. His prerogatives are 
very limited. He has no rank in the army, no power of 
veto, or independently to name any officials. He can not 
enforce a policy, declare war, make peace, or conclude a 
treaty, and the name of their President for any one year 
is even said not to be familiar to the mass of the Swiss 
people. 

The Constitution of 1874 declares that the Confedera- 
tion has for its object to insure the independence of the 
country against foreign control, to preserve the tranquility 
and the rights of the Cantons, and to increase their com- 
mon well-being. The Confederation has alone the right 
to declare war and conclude peace, as well as make alliances 
and' treaties with foreign states, especially commercial 
treaties. But the Cantons reserve the right of negotiating 
with foreign states any treaty affecting general adminis- 
tration, local intercourse, and police, so long as such 
treaties contain nothing injurious to the Confederation or 
to the rights of other Cantons. The Confederation may 
not support a standing army, but every male citizen be- 
tween twenty-four and forty-four years of age is bound to 
military service and drill. Those between the ages of 
twenty-four and thirty-two are designated as the regular 
army, and number — officers and men — about a hundred 
and twenty-five thousand ; those between the ages of thirty- 
two and forty-four constitute the Landwehr (militia), and 
number about eighty-four thousand. Thus, while no great 
army seems to exist in Switzerland, the whole able-bodied 
male population of the country can readily be made into 
an army. The natural defences of the country have been 
utilized to the best advantage, and great care has been ex- 
pended upon numerous defensive works on the frontiers. 
No Canton may have more than three hundred men under 
arms. If disputes arise between Cantons, they shall abstain 
from all recourse to violence or arms, and shall submit 
themselves to the decision taken upon these disputes in 
conformity with federal regulations. That is to say, in 



184 THE THEORY AND PRACTICE OF TAXATION. 

case of necessity the Federal Council summons the Assem- 
bly to act; or it may demand the aid of other Cantons, 
which are bound to give it, or it is authorized to raise 
troops and employ them on condition of immediately sum- 
moning the cantonal councils if the number of troops 
raised should exceed two thousand, or if they remain under 
arms more than three weeks. 

Other articles of the Constitution regulate the military 
training and employment of citizens; the power of the 
Federal authorities in regard to public works; the main- 
tenance of free, compulsory, and non-sectarian education; 
the principles of taxation and cantonal tariffs, consistently 
with general free trade; the right of domicile; municipal 
and communal rights, and the general toleration of re- 
ligious belief and worship. Nevertheless, the Order of 
Jesuits and the societies affiliated therewith may not be 
admitted into any part of Switzerland ; and all intervention 
by their members in the church or in the schools is for- 
bidden. " The exercises of the Salvation Army fell under 
the laws of the municipalities against nuisances; the final 
judicial decision in this case being in effect that while 
persons of every religious belief are free to worship in 
Switzerland, none in so doing are free seriously to annoy 
their neighbours." * Freedom of the press, of local trial, 
and trial by jury are also guaranteed. Previous to 1848 
the different Cantons conducted their postal service by 
different methods ; but since that time its control and man- 
agement, together with that of the railway system of the 
country, have become exclusive functions of the Federal 
Government. 

Attention is next asked to the cantonal political organi- 
zation and government. Every Canton and demi-Canton 
is sovereign and independent in local affairs and in all 
other matters that are not limited by the Federal Con- 
stitution. In respect to their forms of government, they 
agree in little else than the claim and possession of abso- 
lute popular sovereignty; and differ much in respect to 
governmental organizations and methods of administra- 
tion. Twenty-two of the twenty-five Cantons (states) are 
divided into 2,706 communes (townships) ; and each com- 

* J. B. Sullivan. The Commonwealth of Switzerland. 



THE SWISS BUDGET. 185 

mune governs itself in respect to all local affairs, so far 
as is consistent with cantonal and Federal rights. "The 
citizens of each commune regard it as their smaller state, 
and are jealous of any interference by the greater state; 
and unless the interests of the Canton or the Confederation 
are manifestly superior to those of the locality, the com- 
mune is unwilling to part with its administrative power 
and jurisdiction over its lands, forests, police, roads, 
schools, churches, or taxes. In the Cantons in which 
German is the official language (sixteen in number) it is 
customary for the adult male population to meet annually 
in an open-air assembly in a town market-place or on a 
mountain side, and there propose, debate, and enact their 
laws, and elect their officers by universal vote; thus defer- 
ring to and establishing popular will without resort to any 
intermediate representative machinery." 

The question here naturally arises, How did such a 
nation or confederation, made up of twenty-two small states 
differing from each other in many essential features — re- 
ligious, political, social, industrial, physical, and linguistic 
— originate? A general answer, based on a large amount 
of historical research and publications, is that it was due 
originally to a drawing to a common centre of a number 
of small districts, from the contiguous monarchies of Ger- 
many, France, and Italy, for common defence against a 
common foe; and hence also it is not surprising that the 
political boundaries of Switzerland do not follow the natu- 
ral configuration of the country. 

The revenues of the Confederation or Federal Govern- 
ment of Switzerland in 1894 were estimated at 84,047,312 
francs ($17,000,000), and its expenditures at 83,675,000 
francs. The various Cantons of Switzerland have their 
own budgets of revenue and expenditure. For 1895 their 
combined budgets indicated a revenue of about 78,880,000 
francs ($15,700,000), and an expenditure somewhat 
greater, making a nominal aggregate of about $33,000,000 
to be annually raised by some form of popular contribu- 
tion or taxation. As a considerable part of the cantonal 
revenues is derived from the proceeds of taxes imposed and 
collected by the Federal Government, and as contributions 
are made in turn to the latter by the Cantons, it is not easy 
to estimate the present annual average per-capita burden of 
13 



186 THE THEORY AND PRACTICE OF TAXATION. 

taxation on the people of Switzerland; but, making all 
allowances, it is certainly not inconsiderable. Some years 
since the average tax burden on every inhabitant of the 
Canton of Zurich, the most populous and richest of the 
Swiss Cantons, was reported at 40.15 francs ($8).* 

A further question of interest and importance that now 
arises (and which constitutes the main subject for con- 
sideration in the present chapter of this series) is, Under 
what system and by what methods is this certainly large 
average per-capita obligation for the maintenance of the 
several governments of Switzerland apportioned and col- 
lected? And as a help to a proper understanding of this 
problem the foregoing somewhat detailed description of 
the nature and functions of these governments has been 
thought necessary. 

For the Confederation or Federal Government of 
Switzerland, which is not allowed to levy direct taxes, the 
main source of revenue is the customs (duties) on imports, 
which are levied and collected on the frontiers of the re- 
public. Originally the idea on which it was sought to base 
the Swiss customs was to tax all articles of commerce en- 
tering from foreign countries on a single uniform plan, 
having regard solely to financial and not to prohibitive 
or protective results; and this same idea prevails at* the 
present time. " Changes in the customs have been made 
in recent years to correspond to new conditions or new 
commercial relations, but the Government has always kept 
as near free trade as good financiering would allow. The 
system of assessment of duties on imports differs from that 
of England, in that instead of a few articles being selected 
to stand as much duty as they will bear, a large number 
— almost every commodity, in fact — is taxed a little. The 
schedule of rates contains over eight hundred articles which 
are subject to import duty." f 

As a rule, raw materials necessary for manufactures 
are admitted free of duty, and while the principle of im- 
posing the highest duties on luxuries is fully recognised, 

* The present aggregate of all forms of taxation imposed for 
defraying all the expenditures of the Federal Government of the 
United States is equivalent to an average of about $6,538 per head 
of all its population. 

t Vincent on the Government of Switzerland. 



THE ALCOHOL MONOPOLY. 187 

the duties on articles of general consumption are very 
light; tobacco paying from two to four cents per pound, 
tea about four cents, coffee one cent. Export duties are 
levied upon a very few articles, chiefly on timber, live 
stock, and certain raw materials. As recently as 1848 
each Canton imposed cantonal tariff duties on imported 
goods, but these have now been abolished, with one curious 
exception, namely, that of salt. The sale of this article 
being a monopoly of the state, whether its production be 
domestic or foreign, but its retail price being regulated 
by each Canton for itself, the supervision of the imports 
of salt into each Canton becomes necessary. 

By a statute passed in 1887 the manufacture of alco- 
holic liquors was made a state monopoly. The net proceeds 
of the business as thus conducted are considerable, but the 
entire net receipts are distributed among the several Can- 
tons in proportion to their population. Smuggling and 
other evasions of the law under the new system are acknowl- 
edged to be extensive and irrepressible, so that the measure 
in question is yet generally regarded in the light of an 
experiment. 

As this subject is one of special interest in other coun- 
tries, it is thought expedient in this connection to submit 
a presentation and review to it as recently made by Prof. 
John Martin Vincent, Professor of History in Johns Hop- 
kins University: 

" The right to manufacture the higher grades of dis- 
tilled spirits belongs exclusively to the Federal Govern- 
ment of Switzerland. This is effected by contract either 
with home or foreign distillers, but at least one fourth 
of the quantity required must be manufactured by do- 
mestic companies, to whom the Government makes allot- 
ments from time to time. In order to encourage agricul- 
ture, the distillation of certain native fruits and roots is 
exempted from the monopoly and made free to any one. 
The Government is also the distributor of liquors in quan- 
tities not less than one hundred and fifty litres (a litre 
= 1.05 quart), and fixes the prices. Spirits used for tech- 
nical and household purposes must be sold at cost of manu- 
facture, and before delivery must be reduced by the addi- 
tion of wood spirits or other mixtures which render them 
unfit for drinking. The peddling of liquor from house 



188 THE THEORY AND PRACTICE OP TAXATION. 

to house is entirely forbidden except for the kind last men- 
tioned. Retail dealers require a license from the cantonal 
authorities, and pay a graduated tax according to the 
amount of their sales. The traffic in quantities above forty 
litres is considered wholesale and under no restriction. 
The administration of the liquor business is therefore en- 
tirely in the hands of the Federal authorities until the 
spirits reach the retail dealers; there the States [Cantons] 
step in to regulate the number and the character of the 
dram shops, to make the necessary sumptuary and police 
laws, and exact such license fees as may seem best. The 
net profits of the government management are collected 
by the Federal authorities, but divided entirely among the 
states [Cantons] in proportion to population. The Can- 
tons on their part are obliged to expend at least ten per 
cent of this dividend in suppressing the evils of intemper- 
ance, and to report annually to the Federal Government. 
Distilleries, in order to continue operations, must be large 
enough to supply one hundred and fifty hectolitres (a 
hectolitre = 26.4 gallons) a year. The monopoly is pro- 
tected from competition by foreign countries by a duty of 
eighty francs per hectolitre upon all high-grade liquors 
imported, and by a graduated scale of duties upon all con- 
taining less than seventy-two per cent of alcohol. No one 
except the Federal Government is permitted to import 
alcohol for industrial purposes, because the reducing pro- 
cess must undergo inspection in order to prevent fraud. 
In getting its supply for the home market the Govern- 
ment may purchase three fourths of the demand for all 
kinds of spirits anywhere it chooses. The other fourth, 
as mentioned above, must be of home manufacture, and 
the Government has not exceeded that limit, because spirits 
can be bought cheaper abroad than at home." * 

The financial operations of this branch of adminis- 
tration in 1891 amounted to about 13,660,000 francs, from 
which the net revenue was 5,830,000 francs ($1,165,000). 
" This net gain was chiefly due to the mercantile profit 
on liquors for drinking purposes, since industrial spirits 
must be sold at cost. Hence, as a business enterprise, the 

* Vincent, State and Federal Government in Switzerland, pp. 
77-79. 



CONSUMPTION OF SPIRITS. 189 

monopoly is certainly a success. When we inquire into 
the moral and social results, there is at present less that 
is tangible to be observed. The expectation of the pro- 
moters of the scheme was that the evils of drunkenness 
would be reduced, both by decreasing consumption and 
providing a purer quality of drink. This latter end is 
obtained by Government inspection, not only of the mo- 
nopoly distilleries, but also of the smaller establishments 
manufacturing free products. 

" In the matter of consumption there would seem to 
have been a decrease. In 1885, before the introduction of 
the monopoly, the total demand of distilled liquors for 
drinking purposes was about 150,000 hectolitres, while in 
1889 the amount sold by the Federal Government for such 
use was 67,242 hectolitres. But it would not be safe to 
say that the country had become temperate to this ex- 
tent, for there is strong reason to believe that much of the 
reduced alcohol intended for the arts is either purified 
again and used for drinking, or consumed outright in its 
mixed state. The use of liquor will by no means be 
brought under control so long as the distillation of low 
grades of fruit spirits and the manufacture of malt drinks 
are under no restriction. No one can tell whether the 
apparent decrease in consumption is not merely a diver- 
sion of appetite to applejack and absinthe, or perhaps to 
an increased use of wine and beer." * 

Small amounts to the credit of the Federal revenue 
also accrue from the postal and telegraph service, from 
the lease of public domains, the monopoly of the manu- 
facture and sale of gunpowder, from military exemptions, 
and the like; but the aggregate income from these sources 
is comparatively unimportant. The powder monopoly at 
one time yielded considerable revenue, but when new and 
more powerful explosives came into favour the profits were 
greatly impaired. The income from the Federal domains 
amounts to about five tenths per cent of the total revenue. 
The largest item of expense to the Confederation is the 
army, which requires nearly forty per cent of its entire 
revenue. " Although carrying on no wars of its own nor 
joining in the conquests of other countries, Switzerland 

* Ibid., pp. 80, 81. 



190 THE THEORY AND PRACTICE OF TAXATION. 

is compelled to undergo this great expense in order to pre- 
serve her neutrality and the integrity of her borders." 

The comparatively recent tax experience of the twenty- 
two Cantons of Switzerland has been very peculiar, and 
different in many respects from that of any other country 
— a result that might naturally have been expected from 
their respective governmental independence, jealousy of 
other Cantons, internal antagonisms consequent on the 
division of each Canton into sub-governing communes, and 
in the radical differences in respect both to language and 
religion. 

The taxation of property in general (or the so-called 
general property tax) has been thoroughly tried in Switzer- 
land and, although substantially abandoned in all other 
European countries, is still adhered to, and constitutes an 
important feature in the fiscal system of all the Swiss Can- 
tons. In the case of realty the tax is levied on the capital, 
and not upon the annual value of the estate. In the case 
of personal property everything is taxed, whether it yields 
an income or not — furniture, pictures, jewelry, carriages, 
etc.; but furniture and trade appliances up to the value 
of $1,000 are exempted. 

With a view to the successful enforcement of this kind 
of taxation almost every conceivable method has been de- 
vised and adopted, such as self-assessment in the form of 
compulsory returns on the part of the individual; assess- 
ments by officials on assumed data, oaths and no oaths, 
publicity and secrecy; and all of these, as has been the 
experience of the United States in the same line of policy, 
have been confessedly ineffective. One institution, how- 
ever, has been developed in recent years that is peculiar to 
Switzerland, and that is the so-called inventory method 
(inventarization) . "As soon as a taxpayer dies his entire 
property is at once seized by the Government and held 
until an exact inventory is made of it. If this discloses 
fraud in the previous self-assessments, punitive taxes must 
be paid, ranging in some Cantons over a period of ten 
years." That such a method of tax administration has 
and will prove effective in increasing tax receipts can not 
be doubted, but its objectionable features are no less evi- 
dent. Thus it intrudes upon the privacy of families, for 
the purpose of fixing seals upon their property, at a most 



GRADUATED TAXATION. 191 

inopportune moment, and seeks evidence of the .violation 
of law, " as it were, in the very chamber of death." It also 
offers a bounty for the effective transfer of property by its 
owner in anticipation of death.* 

Considering that a greater equality of fortune prevails 
in Switzerland than in almost any other country, it is 
somewhat remarkable that it has taken lead of all coun- 
tries in instituting a system of progressive or graduated 
taxation, and has made it applicable not only to property 
but also to income and inheritance taxes. 

Graduated taxation now exists in a majority of the 
Swiss Cantons, and in only a few is there any prescribed 
limit to the progressive rate of assessment. The gradu- 
ation is applied in different ways. In some Cantons, estates 
(real and personal) are classified according to their 
amounts. The rate of the tax is the same, but a varying 
proportion of the value of the estate is exempted. Thus, 
in the Canton of Zurich the tax is levied on five tenths 
of a property valued at four thousand dollars, six tenths 
on six thousand dollars, seven tenths on ten thousand dol- 
lars, eight tenths on twenty thousand dollars, nine tenths 
on forty thousand dollars, and on the entire estate when 
exceeding forty thousand dollars in value. In other Can- 
tons, as Aargau and Schaffhausen, an addition of vary- 
ing percentage is made to the property tax according as 
the tax at the normal or ordinary rate exceeds a certain 
specified amount. Thus, in the former Canton, every one 
who is assessed for a tax of from forty to seventy francs 
in amount must pay five per cent additional ; from seventy 
to one hundred francs, ten per cent additional, and so on, 
until those who are assessed at over five hundred francs pay 
thirty-three per cent additional. In the latter Canton every 
one assessed at over five hundred francs pays fifty per cent 
additional. In other words, the tax is graded and made 
progressive by adding a certain percentage, not to the tax- 
able property, but to the amount of the tax according to a 
proportional ratio. 

In some of the Cantons, as Vaud, Basel, and Zug, real 
property is divided into three classes: (a) under five thou- 
sand dollars, (&) five thousand to twenty thousand dollars, 

* Essays on Taxation, Prof. E. R. A. Seligman, p. 387. 



192 THE THEORY AND PRACTICE OF TAXATION. 

(c) twenty thousand dollars and upward, and a land tax 
which is enacted each year falls on these three classes in 
the proportions of 1, 1J, and 2. 

In some of the Cantons personal estate is divided into 
seven classes and taxed in the proportions of 1, 1^, 2, 2\, 
3, 3 J, 4 ; the tax being levied on the capital and not on the 
annual value of the estate. In most of the Swiss Cantons 
the progressive or graduated system of taxation in respect 
to property is also made applicable to incomes, inheritances, 
and bequests; and as a rule the progressive scale in these 
respects is more sharply graduated than in the case of 
property taxation. " Another peculiar feature of the Swiss 
taxes is that the progressive rate is applied separately to 
the income tax and the property tax. A taxpayer with 
twenty-five hundred francs income from property and 
twenty-five hundred francs from labour will be assessed 
separately for each, and will pay less than if he had five 
thousand francs income either from property alone or 
labour alone." — Seligman. 

There is, furthermore, no pretence of uniformity in the 
different Cantons in the practical application of the pro- 
gressive system. In fact, it is stated that in no two Can- 
tons are the rates of tax and the classification of the sub- 
jects of taxation identical. In the taxation of incomes 
the average rate does not generally exceed four or five 
per cent; but in some Cantons the rates rule as high as 
seven and even ten per cent. Where income exists without 
a corresponding capital, as from wages, earnings, and life 
annuities, an exemption is generally made of eighty dollars 
a head for each person dependent on the head of the family 
for support. Thus a bachelor earning one thousand dollars 
a year would pay about fifteen dollars, while a married 
man with the same income and twelve children would pay 
nothing. 

Taxes on inheritances and successions in Switzerland — 
which are levied in most or all of the Cantons — are char- 
acterized by extreme variations on rates, ranging from a 
very small percentage in some Cantons to twenty and even 
thirty per cent in others, in the cases of the remote, or non- 
relatives. 

Apart from the federal and cantonal systems of taxa- 
tion in Switzerland, there is a third system which is re- 



LOCAL TAXATION IN SWITZERLAND. 193 

garded as distinctive, and under the name of local em- 
braces special and separate assessments for the purpose 
of defraying local or communal expenditures — i. e., police, 
preservation of forests, roads, schools, and the like. A 
leading characteristic of such taxes is, that they do not 
embrace the idea of progressive or graduated assessments; 
and in their chief incidence on local tangible property 
do not permit any material reduction of appraisements, 
or valuations on account of any incumbent indebtedness 
— mortgages and the like — as is the practice in the ap- 
praisements of like property for cantonal taxation. A 
household tax and a poll tax are also, to some extent, 
features of Swiss local taxation. 

Of the varied subjects of taxation from which the Swiss 
Cantons mainly derive their revenue, the following classi- 
fication and exhibit of those of the Canton of Vaud in 
1887, the third largest Canton in respect to population, 
though not in area, will serve as an illustration : 

1. Public lands, forests, and salt monopoly. 

2. Licenses to retail tobacco, wine, and spirits. 

3. Taxes on dogs, saddle horses, carriages, and billiard 
saloons. 

4. A tax on all transfers of real property (droit de 
mutation). 

5. An annual tax on the capital value of real property 
(impot fonder). 

6. An annual tax on the capital of all personal property 
and on incomes (impot mobilier). 

The last three taxes are the most important and pro- 
ductive, their united product being equal to about nine 
tenths of the entire revenue. 

Concerning the results of this novel and complicated 
system of taxation in Switzerland there is great diversity 
of opinion. That it is not uniform throughout the com- 
paratively small territorial divisions of the country to 
which it has been made applicable, only a very few Cantons 
being reported as in agreement ; that no fixed rules govern- 
ing progression or gradation in assessments have been 
generally agreed upon and established; that the practical 
administration of the system is in the highest degree arbi- 
trary; and that the ascertainment of the tax that an in- 
dividual or estate shall pay often involves a series of com- 



194 THE THEORY AND PRACTICE OF TAXATION. 

plex and difficult computations and additions, are all points 
in respect to which there is no question. 

The anomaly and gross iniquity of double taxation on 
one and the same property, contingent on the circumstance 
that the situs of the property and the domicile of its owner 
are not within the same territorial and governmental juris- 
dictions, and which is at present a subject of much discus- 
sion and deprecation in the United States, is also a vexing 
problem in the system of taxation in Switzerland, two dif- 
ferent communes, as a rule, making demands of a tax- 
payer by reason of his holding a landed estate in one and 
residing and exercising the rights of a citizen in the other ; 
and the probability of any just and satisfactory solution 
of this perplexing problem is as remote in one country as 
in the other. 

Notwithstanding the above and other objectionable 
features, the people of Switzerland appear to be generally 
satisfied with their fiscal experiment, and thus far have 
exhibited but little disposition to change it; and all the 
most important Cantons that have tested it report a steady 
increase in their aggregate valuation of both property and 
income. Even the extreme high rates of taxation assessed 
on large properties and incomes — amounting in some Can- 
tons almost to confiscation — have not been generally re- 
garded with disfavour, but probably for the reason that 
the number of persons in Switzerland who are liable to such 
assessments is comparatively limited. 

On the other hand, it is contended that any fiscal gain 
that is reported under the new system has been more than 
counterbalanced by depreciation in land values and injury 
to local trade. In the Canton of Vaud, for example, where 
the new ideas are specially exemplified, wealthy families 
are reported as having left the Canton, and that many of 
its citizens regularly close their houses for nine months 
in the year in order to evade the law. Foreigners, too, are 
said to be less and less anxious to reside in the Canton. 
In consequence of this, it is claimed that many properties 
in Vaud have depreciated fifty per cent, and that trade 
suffers greatly. Whether all these allegations are true or 
not, it is significant that a proposal to introduce the Vaud 
system into the Canton of Berne was rejected by its people 
by an overwhelming majority. 



TAXATION AND CIVILIZATION. 195 

To the Header : With the publication of this chapter 
on The Tax Experiences of Switzerland, the first part of 
the plan laid out by the writer for discussing the Principles 
of Taxation comes to a conclusion. This plan, apart from 
an introductory survey of the subject, and a review of the 
interesting and most instructive tax experiences of the 
United States consequent on the civil war, and with which 
the writer ( as chairman of the United States Eevenue Com- 
mission in 1865, and as United States Special Commis- 
sioner of Eevenue from 1866 to 1870) was officially and 
closely associated (Chapters I and II), was to set forth 
the position of taxation in literature and history ; and more 
especially to narrate the most notable experiences of differ- 
ent countries and nations in compelling contributions or 
exactions for the support of the state from the people 
governed, and the far-reaching and important results that 
have been contingent upon and have followed the differ- 
ent policies that have been adopted for such a purpose. 
The underlying idea that suggested this plan was as fol- 
lows: 

Every person of ordinary intelligence, if questioned, 
will probably admit that the subject of taxation is one of 
the most important that can concern the masses of the 
people; and that their well-being and the continuance of 
good government, and even of civilization itself, are more 
dependent on the involved power of its administration 
and discretionary incidence than upon any other agency 
— a power so great that its right exercise in even the 
smallest degree, according to the late Chief-Justice Mar- 
shall, "involves the right to destroy." And yet the same 
citizen will probably say that the subject, as ordinarily 
presented and discussed, is so dry and uninteresting as to 
be exceedingly unattractive, and even repellent; that the 
conflict of opinion on the part of those who through study 
claim to understand it is so diverse that any general con- 
currence of opinion in regard to fundamental principles 
is impossible; and, finally, that all experience shows that 
by reason of this state of things mercenary and political 
considerations necessarily predominate in the construction 
of any general system of taxation. 

It is obvious that under such circumstances it must be 
difficult or impossible to induce the masses of the people 



196 THE THEORY AND PRACTICE OF TAXATION. 

to intelligently interest themselves in the subject of taxa- 
tion, and that in countries like the United States, where 
under free and universal suffrage the same people elect the 
legislators who shall determine the policy of their Govern- 
ment, laws will be enacted for the collection of revenue 
for the support of the state that will be neither productive 
nor effective, and do not promote but rather impair the 
industrial and commercial interests of the country. 

The question, then, next suggests itself, How can a dif- 
ferent state of things be brought about? How can the 
people in general be induced, in the sense of persuasion and 
not of compulsion, to interest themselves in this subject? 
The idea of the writer is that such a change can best be 
effected by showing that the subject is not necessarily dry 
and uninteresting; that it really constitutes more than 
almost any other element the essence of history; and that 
the record of the results that have followed the attempts 
to establish almost every form of taxation that human 
ingenuity can devise, has even in a very high degree the 
attraction of romance. Its study from such a point of view 
constitutes a better basis for casting a horoscope of the 
future of nations and governments than aught else within 
the ken of the historical student. 

In the chapters that are to follow, where a search for 
the underlying principles of taxation is to be prosecuted, 
a resort to more or less abstract reasoning is a necessity. 
But even here the presentation of abstract principles, to 
which assent will be asked or expected, will be avoided as 
far as possible, with the expectation that the reader will, 
from a consideration of the facts and deductions presented, 
be able himself to frame and determine the principles that 
should govern a correct system of taxation by a process 
of self-evident induction. 



CHAPTER IX. 

THE DEFINITION, OBJECT, AND SPHERE OF TAXATION. 

It would seem to be in the nature of an economic or 
common-sense axiom, that a large and varied experience 
in respect to the management of any one of the great de- 
partments of the world's business, would result in the 
gradual evolution and final definite establishment of cer- 
tain rules or principles, which would be almost universally 
recognised and accepted as a basis for practical applica- 
tion and procedure. But in respect to the matter of taxa- 
tion — which is a fundamental necessity f 01 the maintenance 
not only of all government, but of civilization — no such 
result has been achieved. In no department of economic 
science is there, moreover, so much obscurity and conflict- 
ing opinion. Most economists teach that there is " no sci- 
ence of taxation as there is a science of exchanges " ; and 
" that there are no great natural laws running through 
and controlling taxation and its effects/' And while the 
student will find examples in the history of states or gov- 
ernments of the practical application of almost every form 
of appropriation of private property under the name of 
taxation which human ingenuity, prompted by necessity, 
selfishness, or greed, could devise,* and a sufficient record 

* " In Austria everything, it is said, is taxed except the air, 
and even that has to be paid for in places famous for their salu- 
brity. Dogs, cycles, newspapers, advertisements, and innumerable 
other articles — pleasures and necessaries — are included in the 
money-producing list; nothing, indeed, seemed excluded until a 
very short time ago, when a provincial financier forwarded an 
exhaustive report to the finance ministry on a neglected source of 
revenue — cats. The horse, the ass, the goat, the hog, the chicken, 
the dog, the goose — all contribute their mites to the support of the 
state, said this financial reformer. The cat alone is a parasite, 
paying nothing to any one and preying upon every one. But is 
the project really practicable? Certainly it is, replies its author, 

197 



198 THE THEORY AND PRACTICE OF TAXATION. 

of effects to warrant the drawing of general and correct in- 
ferences, it is nevertheless probably true that there is not, 
at the present time, a single existing tax, decreed by despot- 
ism, or authorized by the representatives of the taxpayers, 
which has been primarily adopted, or enacted solely with 
reference to any economic principles, or which has sought 
to establish the largest practical conformity under concur- 
rent circumstances to what are acknowledged to be the 
fundamental principles of equity, justice, and rational 
liberty. But, on the contrary, the influence of temporary 
circumstances, as viewed, in most instances, from the stand- 
point of a governmental administration — despotic or re- 
publican alike — desirous of retaining power, has ever been 
the controlling motive in determining the character of 
taxation; or, as Colbert, the celebrated finance minister 
of Louis XIV, is reported to have expressed it, in saying 
that " the art of taxation consists in so plucking the goose 
[i. e., the people] as to procure the largest quantity of 
feathers with the least possible amount of squawking." 

and he forthwith sets himself to prove it. Every cat for which 
the tax — a rather heavy sum — is paid would receive an official 
coloured ribbon for its neck, with a number and a government 
stamp. Every feline defaulter found without this ribbon would 
be seized and temporarily confined in the Cats' Home. If not 
redeemed before the lapse of a fixed term — say eight days — it 
would be sold or poisoned by the state." 

" A tax on beards was in operation for a long time and under 
various forms in Russia. Peter the Great, knowing the attachment 
that his subjects had for the hirsute adornment of the face, intro- 
duced a tax upon the beard in his empire. The beard is a super- 
fluous and useless ornament, said he, and, starting from this prin- 
ciple, he imposed a tax upon it as an article of luxury. This tax 
was proportional and progressive, not in proportion to the length 
of the beard, but to the social position of those who wore it. Each 
person upon paying his tax received a token, which he had to 
carry upon his person, for the guards were inexorable, and, always 
provided with scissors, ruthlessly cut off the beard of those who 
could not show their badge." 

" Catharine I confirmed this tax. In 1728 Peter II allowed the 
peasants to wear a beard, but kept up the tax for the other classes 
under the penalty of work on the galleys in the case of non-pay- 
ment. Czarina Anne rendered life still harder to bearded men, 
for not only were they obliged to pay the special contribution 
imposed upon them, but also had to pay a double tax upon every- 
thing else for which thev were assessed. This tax was not abol- 
ished until the reign of Catharine II (1762-1798)." 



A SCIENCE OF TAXATION. 199 

Hence, apart from its methods of distributing power and 
patronage, the popular idea of evil, as connected with gov- 
ernment, may almost always be referred back to unequal 
or excessive exactions ; and to the reality of which, as evils, 
more than to any other one agency, may be referred most 
of the world's political revolutions, and the ferocity with 
which, as was notably the case in France, they have been 
often conducted. Hence, also, the preference almost always 
shown, on the part alike of those who enact and those who 
pay taxes, for indirect taxation, which very successfully 
blinds the taxpayer as to the amount which he pays and as 
to the time and place of its collection; and hence, finally, 
the idea, which has come to be all but universally enter- 
tained, that taxation per se is in itself an evil — something 
to be avoided, if possible, and an escape from which is 
always " good fortune." 

A question of prime importance, therefore, which 
confronts us at the outset in entering upon any discus- 
sion of this subject is, Are these assumptions of economists 
that there is no science of taxation and no general laws 
regulating its exercise and effects — assumptions generally 
concurred in by jurists and popular sentiment — correct? 
If they are, then there are no principles of taxation to dis- 
cuss, and a consideration of the subject must be limited 
mainly to a recital of the world's experiments and experi- 
ences and an exposition of legislative enactments and court 
decisions. To admit their correctness, furthermore, is 
equivalent to confessing that human knowledge, in at least 
one department, has reached its extreme limit; and that a 
class of transactions which, more than almost any other, 
are determinative of the distribution of wealth, the forms 
in which industry shall be exerted, and the sphere of per- 
sonal liberty, are best directed by accident or caprice. To 
ascertain the true state of the case ought, accordingly, to 
constitute the main object of inquiry, and, with a view 
of helping to the formation of an intelligent opinion, atten- 
tion will be first asked to the meaning or definition of the 
two fundamental terms, tax and taxation. And in so doing 
we obtain immediately an illustration of the indefiniteness 
of idea and lack of exactitude in expression that charac- 
terize this whole subject, and also a very definite clew to 
their origin. 



200 THE THEORY AND PRACTICE OF TAXATION. 

Analysis of the Word Tax. — Thus, the word tax in 
the English language, and its equivalent in all other lan- 
guages, is used in a very loose and indefinite sense. Many 
writers, and the dictionary-makers generally, use the word 
in an extremely generic sense, to cover and designate all 
contributions obtained by process of assessment and levy 
(act of collection) by a state or government from the per- 
sons and property of its citizens, or from persons and 
property within its power and jurisdiction; in whatever 
form, or however arbitrary the assessments or levies may 
be, and by whatever name they may be known or desig- 
nated — whether tribute, toll, talliage, duty, gabelle, cus- 
toms, impost, poll, subsidy, aid, excise, income, or benevo- 
lence.* Such a definition, however, which makes no dis- 
tinction between contributions levied at his unrestrained 
will or caprice, and for any purpose, by a bandit whom 
circumstances have raised to the head and government 
of a petty tribe or community ; or by an absolute and igno- 
rant Oriental potentate, like Ismail Pasha, Khedive of 
Egypt (1863- 79) ; f or by a European monarch, like 
Louis XIV, who said, " I am the state," and those con- 
tributions which represent that part of the wealth of a 



* " A tax is a rate or sum of money assessed on the person or 
property of a citizen by Government for the use of the nation or 
State." — Webster's Dictionary. 

Tax. — " 1. A disagreeable or burdensome duty or charge; an 
exaction; a requisition; an oppressive demand; strain; burden; 
task. 

" 2. An enforced proportional contribution levied on persons, 
property, or income, either [a) by the authority of the state for 
the support of the government, and for all its public or govern- 
mental needs, or (b) by local authority for general municipal 
purposes." — Century Dictionary. 

"The definition of both Webster (Daniel) and Story (Justice) 
is, that a tax is a contribution imposed by Government on indi- 
viduals for the service of the State." — Miller, on the Constitution 
of the United States, p. 235. 

" Taxes are defined as the enforced proportional contribution 
of persons and property levied by the authority of the State for 
the support of the Government and for all public needs." — Cooley 
on Taxation, p. 1. 

" A tax is a portion, or the value of a portion, of the property 
or labour of individuals taken from them by Government and 
placed at its disposal." — J. R. McCulloch. 

t See ante, p. 144. 



DEFINITION OF A TAX. 201 

state which is taken from its citizens with their free con- 
sent for exclusive public purposes, in accordance with a 
well-defined and intelligent public policy ; a definition that 
recognises no distinction between these two methods and 
objects of taking, obviously can not be scientifically cor- 
rect; for there can be no more analogy between the two 
methods than between a payment for value received and an 
act of highway robbery.* Obviously, also, there can be no 
science of taxation predicated or formulated on such a 
definition, for there can be no science of irregularity and 
arbitrary action. 

Again : " So long as people use words which have no 
precise signification, which may be interpreted in a variety 
of ways, and which present at once to the mind different 
ideas more or less obscure, more or less mixed up with one 
another, there will be uncertainty in the theory, or rather 
there will be a vague, incomplete, and ill-co-ordinated 
theory; and then, as all practice is the application of a 
theory, the practice resulting from it will be faulty." — 
M . Menier. 

The French economist above quoted also makes the 
following well-warranted criticism on the current defi- 
nitions of taxation : " They have," he says, " one general 
fault: they try to point out the employment of taxes, but 
they do not show the origin of taxes." 

What, then, will be a correct definition of a tax? 

It is not easy to frame such a one, in clear and suc- 
cinct language, covering all the essential conditions. It 
probably never has been done, and therefore the best thing 
to do is not to spend time and effort in attempting it, but 
rather to endeavour to illustrate and point out its meaning 
indirectly. And, with this purpose in view, it is impor- 
tant to recognise at the outset an exact and homely truth, 
and one which heretofore has often been overlooked by 
writers on taxation and political economy, namely : 

That a government never has any money — by which 

* Despotic rulers in all ages of the type of Louis XIV, the 
Khedives of Egypt, the Sultans of Turkey, and the Czars of Russia 
have undoubtedly regarded their expenditures of money exacted 
under the name of taxation from their subjects for the mainte- 
nance of great armies, harems, mistresses, pensions to favourites, 
and the like, as for legitimate public purposes. 
14 



202 THE THEORY AND PRACTICE OF TAXATION. 

alone the expenses of the state can be defrayed — except 
what the people — citizens or subjects — give, or concede to 
it by voluntary or involuntary action ; and that the people, 
as a whole and in turn, never have any to give except what 
conies to them as the result of their work, or from an ex- 
change of the products of their work. And such being 
the case, it follows, as has been happily pointed out by Mr. 
Atkinson, that what the Government really wants of its 
people, when it calls upon them for taxes, is work, and 
that the methods of taxation are only methods for collect- 
ing and using the products of work.* Hence the following 
definition of a tax, deduced from the above statement of 
fact by Mr. Atkinson — that " it is that certain portion of 
the product of a country which must be devoted to the sup- 
port of the Government " — embodies a meaning and a truth 
not incorporated and set forth in the ordinary or popular 
definitions. At the same time it is deficient in not recog- 
nising any distinction between a just and uniform tak- 
ing and an exaction or confiscation. 

Taxation in the United States, its Aggregate and 
Distribution. — During the year 1890 the aggregate reve- 
nue receipts of the several governments of the United 
States, derived mainly from taxation, as reported by the 
census of that year,f were $1,039,482,013, apportioned 
as follows: Federal taxation, $461,184,680; State taxa- 
tion, $578,328,333. The last aggregate was again sub- 
divided into $116,157,640 for State purposes, including 
the Territories and District of Columbia, $133,525,493 for 

* " Taxation means work, of the head, of the hand, or of the 
machine, or all combined. And the method of taxation is only 
a method of distributing the products of work. It is measured, 
when in the process of distribution, in terms of money, but the 
money itself stands for work, or is derived from work. And the 
work of the Government is as much a part of the work of the 
community as any other. All who work, from the head of the 
nation down to the lowest municipal official, must be supplied 
with shelter, food, and clothing; and those who pay the taxes do 
the work that is necessary to furnish this supply." — The Indus- 
trial Progress of the Nation, Edward Atkinson; Taxation and 
Work, same author. 

f The census of 1890 presented for the first time even an ap- 
proximation of the annual incomes of the several governments of 
the United States, and the amount and objects for which they 
were expended. 



TAXATION AND WORK. 203 

county purposes, and $329,635,200 for municipalities and 
schools. If a temporary and extraordinary charge for pen- 
sions — $140,959,361 in 1895 — which now rests upon the 
Federal Government, were eliminated, and Federal ex- 
penditures were reduced correspondingly, the taxation and 
expenditures of the national or Federal Government would 
be small in comparison with the total cost of all govern- 
ment, Federal and State; a result that constitutes a com- 
plete refutation of the common assumption that the na- 
tional Government is rapidly absorbing the functions of 
the State and local governments and reducing them sub- 
stantially to police precincts. Of the Federal revenues, 
nearly one half under the existing fiscal system are derived 
from stamp taxes and taxes on distilled spirits, fermented 
liquors, and tobacco, all of which may be fairly regarded 
as self-imposed. 

If we assume, as we are probably warranted in doing, 
the average value of the product of each person in the 
country who is occupied for gain at six hundred dollars 
per year,* or two dollars per day for three hundred work- 
ing days, then that part of the annual product of the coun- 
try which went to the support of its Government or the 
State in 1890 was the equivalent of the work of 1,734,121 
such persons for one year, or 520,236,300 days' work; or, 
in other words, for every dollar that the Government ex- 
pends, somebody must work for at least half a day, or 
furnish a value equivalent for such an amount of work. 
Again, for the year 1890, the aggregate of taxation in the 
United States — national, State, and local — required or rep- 
resented about seven per cent of the value of the entire 
annual product of the country, which probably approxi- 
mated $1,200,000,000. In former days it was often cus- 
tomary to allow persons to pay their taxes by actual days' 
work, and this is still the practice in some parts of the 
United States and in Canada and some countries of Eu- 
rope. Before the French Revolution, the tax imposed on 
the French peasantry, and known under the name of corvee, 

* The most recent investigations of Mr. Atkinson, the best au- 
thority on this subject, have led him to the conclusion that the 
average value of the product of each person in the United States, 
working for gain three hundred days in the year, was in 1890 
nearer $700 than $600 per annum. 



204 THE THEORY AND PRACTICE OF TAXATION. 

as has been already shown, was an obligation to render a 
specified number of days' work to the state, or to some 
seignior or noble. During the early colonial days of Massa- 
chusetts, the people of the settlements far removed from 
Massachusetts Bay paid their proportion of the expense of 
maintaining a colonial government at Boston in wheat, 
which was shipped down the Connecticut Eiver in canoes, 
and then transferred to sailing craft and transported by 
sea to Boston. One could hardly imagine the disturbance 
and excitement that would be occasioned if all the taxes 
of the country were to be collected in this way, and if the 
head of every family was compelled to perform annually 
some twenty days' labour to discharge the obligation in- 
cumbent on himself and family to pay taxes, which would 
be about the amount which the head of every family in the 
United States would have to perform to meet its present 
annual expenditures. Everybody would then be talking 
economy; and the politician who wanted votes, instead of 
promising public buildings, or more salaried offices to his 
constituents, would say, " Gentlemen, give me your votes 
and elect me, and I will have your compulsory labour cut 
down next year from twenty-five days to twenty, or even 
fifteen." And yet the difference between that state of 
things and the present is merely a difference of appearance. 
What is Taxation? — The popular or dictionary defi- 
nition of taxation — namely, " the act of levying a tax or im- 
posing taxes " — is as indefinite and imperfect as the ordi- 
nary definition of a " tax " has been shown to be. Scientifi- 
cally considered, taxation is the taking or appropriating 
such portion of the product or property of a country or com- 
munity as is necessary for the support of its government, 
by methods that are not in the nature of extortions, pun- 
ishments, or confiscations; and a systematic and orderly 
arrangement and presentation of the knowledge gained 
by experience and discussion, with a view to effect such a 
result with certainty, uniformity, and the minimum of 
cost and trouble to society and its individual taxpayers or 
contributors, constitutes the Science of Taxation* 

* Essentially the same definition of taxation has been given by- 
Mr. J. "R. McCulloch. " It is," he says, " the name given to the 
branch of the science of political economy which explains the mode 
in which different taxes affect the public interest, and in which 



MEANING OF TAXATION. 205 

In what will be hereafter said, the word taxation will 
be used as far as possible in the sense in which it has been 
denned; but at the same time the employment of the un- 
scientific term has become so general that its nse in default 
of any satisfactory synonym is almost unavoidable, espe- 
cially in the historical treatment of the subject. 

Such a limitation of the meaning and nature of the 
word tax as has thus been given is clearly of the first im- 
portance, and a lack of its recognition is undoubtedly re- 
sponsible in a high degree for the present unsatisfactory 
position of the subject of taxation as a department of 
economic knowledge; and also for a very general belief 
that in determining the forms of taxes the only rule to be 
followed is that of expediency. It may be too much to 
claim that a general recognition and practical acceptance 
of the proposed definitions and limitations are absolute 
essentials for the conception and construction of any just 
and intelligent system of taxation, and also for any such 
collocation of general truths relative to taxation as will 
raise the subject to the dignity of a science. But, be this 
as it may, it seems certain that such recognition and ac- 
ceptance would at once sweep away many obstacles that 
would otherwise stand in the way of such a consummation, 
and bring a high degree of order into what is now a com- 
parative chaos. 

And, as one illustration of this, consider how entirely, 
and yet how naturally, the proposed definitions and limi- 
tations change the generally accepted idea of the relation 
of a tax to the individual taxpayer. 

As has been already pointed out, the popular idea of a 
tax is that it is always an evil. Most writers also on political 
economy, in discussing the subject, start with the idea that 
the act or exercise of taxation necessarily implies perpetual 
antagonism between the state, the sovereign, or the ex- 

the revenue required for the public service may be most advan- 
tageously raised." — Treatise on the Principles of Taxation, J. R. 
McCulloch, 1875. 

" Taxation. — The act of laying a tax, or of imposing taxes on 
the subjects or citizens of a state or government, or on the mem- 
bers of a corporation or company, by the proper authority; the 
raising of revenue required for public service by means of taxes; 
the system by which such a revenue is raised." — Century Dic- 
tionary. 



206 THE THEORY AND PRACTICE OF TAXATION. 

ecutive, and the private citizen. The parties concerned 
are the citizen on the one side and the state on the other, 
and the former being comparatively weak and the latter 
exceedingly strong, the state is always assumed to get the 
upper hand. M. Proudhon, in his work Theorie de I'Impdt, 
maintains that " all taxes are iniquitous," and that " if a 
sole tax was established it would be the sum of fiscal in- 
iquities." " There are no taxes," says Eicardo, " which 
have not a tendency to lessen the power to accumulate." 
J. B. Say, the eminent French economist, declared that, 
by whatever name known, taxes are always a burden upon 
the private citizen. M. Garnier, another French economist, 
defines taxes " as the reduction made on the private for- 
tunes of the citizens by the Government to meet public 
expenditures." According to John Stuart Mill, " it is im- 
possible in a poor country to impose any tax which will not 
impede the increase in the national wealth." 

" None of us feel, when the tax-gatherer comes, that to 
be taxed is a favour; or that, as to the money exacted, we 
as individuals are the better off for its having been taken 
from us. We know the tax is a burden ; as such it is recog- 
nised by every person upon whom it is imposed." — Hon. 
Thomas M. Cooley. 

All such conceptions of the position of the state in re- 
spect to the taxpayer are, however, monarchical, implying 
the relation of master and subject, lord and serf ; * and 
from such a point of view this general idea of antagonism 
between the taxpayer and the government is correct and 
has been in accord with the great mass of the world's ex- 
periences. In fact, these conceptions undoubtedly origi- 



* When the Jewish people, weary of the tax despotism of a 
sacerdotal class — i. e., the tribe of Levi, to whom the land was 
held to have been given by Jehovah — manifested an intention of 
setting up a king, the prophet Samuel foretold that under royalty 
taxation would be still more oppressive, and " this," he said, " will 
be the manner of the king that shall reign over you : He will 
take your sons and appoint them for himself, and set them to ear 
his ground and reap his harvest; and he will take your daughters 
to be cooks," etc. ; " and your fields, and your vineyards, and your 
olive-yards, even the best of them; and the tenth of your seed, of 
your sheep, and your goodliest young men and put them to his 
work," etc. And the prediction then made was verified, as under 
like circumstances it has always since been. 



TAXATION NOT AN EVIL. 207 

nated with the first or old economists, who, living nnder 
arbitrary, despotic governments, and nnable to comprehend 
the modern ideas respecting personal liberty and a free 
government, came to the only conclusion respecting the 
nature of taxation that their limited sphere of observa- 
tion and experience wonld permit.* And so to-day, nnder 
an absolute government, the interests of the sovereign — 
czar, sultan, emperor, king, whatever name he bears — are 
always in a greater or less degree in antagonism to those 
of the nation, and these same conceptions have also to a 
large extent been generally accepted in states whose form 
of government is not monarchical, but free or popular, as 
in the United States, where, through lack of intelligence 
or interest on the part of the general public and of the law- 
makers, systems for raising revenues have been built up 
and tolerated which almost without exception are unjust 
in their administration and incidence. When an eminent 
lawyer and member of the Constitutional Convention of 
the State of New York in 1867-'68 stood up before that 
assemblage when the subject of taxation was under con- 
sideration and said, " I insist that a people can not prosper 
whose officers either work or tell lies — there is not an assess- 
ment roll now made out in this State that does not both 
tell and work lies," f no man gainsaid him, for no man 
who had ever given any attention to the subject could. 

But such conceptions are not true of taxes levied under 
a popular form of government, and in accordance with 
conditions essential to justify their right to be called taxes ; 
for there is no one act which can be performed by a com- 
munity which brings in so large return to the credit of 

* With the old economists the state always preponderates. It 
is the master of the citizen instead of being merely the steward 
of the nation. " It addresses the citizens imperiously. They are 
its contributaMes, and must pay. According to such doctrine, life 
is a tollgate. They must give so much a head for the right of 
living in the country. Man is the debtor of the state. Man pays, 
not the commodity, and the citizen remains the serf of the state." 

" Under monarchical right, taxation is speculation by the king 
upon the people. In a word, there is an antagonism between those 
who pay and those who levy taxes. Taxation is the expression 
of that antagonism." — M. Menier. 

t Speech of Hon. M. L Townsend, Delegate at Large, Constitu- 
tional Convention of New York, 1867-'68. Proceedings and De- 
bates, vol. iii, p. 1945. 



208 THE THEORY AND PRACTICE OF TAXATION. 

civilization and general happiness as the judicious expendi- 
ture, for public purposes, of a fair percentage of the gen- 
eral wealth raised by an equitable system of taxation. The 
fruits of such expenditure are general education and gen- 
eral health; improved roads, diminished expenses of trans- 
portation, and security for life and property. And it will 
be found to be a general rule that no high degree of civili- 
zation can be maintained in a community, and indeed that 
no highly civilized community can exist, without compara- 
tively large taxation ; * the converse of this proposition, 
however, at the same time not being admitted, that the 
existence of high taxes is necessarily a sign of high civili- 
zation. 

It is interesting to note, however, that as civilization 
increases, and taxation becomes absolutely greater, it also 
becomes relatively less. Thus, in most of our great cities 
the cost of the water supply to its inhabitants constitutes 
at present one of the largest items of municipal expendi- 
ture — an item that forty or fifty years ago hardly found 
a place in municipal accounts. And yet the cost of a sup- 
ply of even the minimum quantity of water now regarded 
as essential to meet the ordinary requirements for personal 
cleanliness and health would be very much greater to every 
citizen, were he to undertake to supply himself, even if it 
were possible, by the old methods; to say nothing of the 
comfort and luxury, as well as protection against loss by 
fire, which an increased supply, made possible only through 
a greatly increased aggregate of taxation, has afforded. 

In short, taxation assessed and levied under conditions 
clearly conformable to reason and justice, is no more of 
an evil than any other necessary and desirable form of ex- 
penditure. Its proper exercise does not diminish, but 
protects and augments, national wealth, and is no more a 

* " I have not seen an instance of rent being very low, and hus- 
bandry at the same time being good." — Lowe, quoted by McGulloch. 

" It is universally found that the low rents absorb the largest 
proportion of the product." — H. G. Carey, On Wealth, p. 341. 

" An ingenious philosopher has calculated the universal measure 
of the public impositions by the degrees of freedom or servitude 
that accompany them, and ventures to assert that, according to 
an invariable law of Nature, it must always increase with the 
former and diminish in a just proportion to the latter." — Statement 
by Gibbon, on the authority of Montesquieu. 



STATE EXPENDITURES. 209 

burden upon the people of a state than the payments made 
for the care and profitable management of private or cor- 
porate investments of capital are a burden upon the owners 
of such capital. Indeed, M. Menier, whose study of taxa- 
tion entitles him to be regarded as an authority, contends 
that the analogy between the expenditures of a state which 
have to be remunerated by taxes and the expenditures of 
a manufacturer is most complete. The state, he says, pos- 
sesses a certain extent of territory. That territory has 
such and such natural utilities. These natural utilities 
have been developed by labour or appropriated by man, and 
the capital of the nation is the ensemble (the whole) of the 
utilities it possesses. In the ease of a private person the 
conditions are the same. His capital is the ensemble of the 
utilities he possesses. The result which he, equally with 
the state, seeks to attain, is the same — namely, to make 
the capital which they control fructify to the greatest pos- 
sible extent for the benefit of the citizens of the state on 
the one hand and the individual on the other ; and between 
the expenditures which it is necessary to incur for the at- 
tainment of these ends on the part of the state and the 
individual there is no essential difference. And from this 
analogy, thus urged to identity, M. Menier deduces the 
following definition of taxes : 

They represent, he says, the investment of the capital 
of the nation, or state, and the general expenses of its care 
and development * 

It is obvious, however, that M. Menier's analogy would 
not hold good under a system which failed to recognise any 
difference between a tax and an arbitrary exaction. 

* M. Menier, in proposing the above definition, himself recog- 
nised the necessity of accompanying it with the following explana- 
tion : " When I say that taxes ' represent the investment of na- 
tional capital,' it is, of course, understood that I speak only of 
that of the investment assigned to the state, and that I am very 
far from the communistic theory, according to which the state, 
being the owner of the national capital, should turn it to account 
for its own profit. In the useful employment of the capitals of 
the nation there are an individual part and a collective part. In 
my definition of taxes only that collective part, the syndicate 
contribution, is taken into account." — A Treatise on the taxation 
of Fixed Capital, by M. Menier, of the French Chamber of Depu- 
ties. English translation, by I. 0. Gallegan, Fellow of the Uni- 
versity of France; London, 1880. 



210 THE THEORY AND PRACTICE OF TAXATION. 

" So far as it is necessary for the security of person and 
property, money spent for the support of government is 
as usefully expended as is the purchase of clothing or pro- 
visions; but when the sum taken exceeds what is required 
for that purpose, it is only a question of amount between 
the sovereign of India, who exacts one half of the produce, 
and the legislator of Great Britain or the United States, 
who exacts a million of pounds or of dollars for which an 
equivalent is not given." * 

An almost self-evident corollary from these sound de- 
ductions would be, that any tax or system of taxation that 
did not protect but diminished private property would 
tend to imperil or dry up the sources of public revenue. 

A recognition of the true relation which a just and 
equitable system of taxation sustains to the state and to 
the capital or property of its citizens, and also of the fact 
that under such a system a tax works to a diminution of 
the income of the property taxed, and not to a diminution 
of the value of the property itself, ought to effectually ex- 
pose the fallacy of the somewhat popular idea, that taxa- 
tion is really a gradual (and in the course of time a com- 
plete) confiscation by the public of all private or individ- 
ual property ; and that in a certain sense no man by reason 
of taxation can be regarded as having a perpetual owner- 
ship of any property; an annual tax on the value of any 
property of one and a half per cent, with five per cent in- 
terest, exhausting such value in about thirty years. If tax- 
ation brought no returns, either direct or indirect, to the 
persons or property assessed, there would be some warrant 
for regarding it as an act of confiscation; but if it pro- 
vides, as every correct system of taxation does, for a cer- 
tain class of expenditures, in default of which in the pres- 
ent state of society there would be no adequate protection 
to property and no encouragement for its accumulation 
and development, then there is no more reason for regard- 
ing taxation as confiscation than for attributing the same 
effect to payments for wages, rents, repairs, interest,! in- 
surance, etc. 



* H. C. Carey, On Wealth, p. 343. Philadelphia, 1888. 
f This same fallacy was indeed applied to interest in the United 
States, when an eminent official maintained that in paying interest 



HIGH CIVILIZATION AND TAXATION. 211 

A practical illustration of the truth of this conclusion 
is to be found in the circumstance, that as a rule the class 
of property paying the highest proportional taxes in any 
community is the most profitable or desirable to its owners. 
It is also a pertinent question, why property which has 
paid taxes for a given period — say thirty years — and has 
so been absorbed by the public, should continue to be as- 
sessed; or why, if the person popularly regarded as the 
owner of such property should refuse to pay taxes, the 
property should be sold for taxes when it has already been 
taken to itself by the public. 

Another point of interest in connection with this sub- 
ject is, that if a high degree of civilization can not exist 
without a high degree of taxation,* the methods of econo- 
mizing labour, or, what is the same thing, of producing a 
greater amount of product with a given amount of labour 
— conditions which make high civilization possible — en- 
able a government progressive in this respect continually 
to take a larger share of the results of the work of its citi- 
zens, expressed in terms of money, without really increas- 
ing their burdens of taxation. " Every invention and dis- 
covery by which the production of commodities is facili- 
tated and their value reduced, enables individuals to spare 
a larger quantity for the use of the state. The sacrifice 
made in paying taxes consists in the labour or in the cost 
of the money or produce required to pay them, and not 
in the amount of such money or produce/^ A given 
amount of food and clothing, iron, steel, copper, leather 
goods, paper, and transportation can now, for example, 
be furnished to the Government of the United States for 
at least one third, and probably not more than one fifth, 
of the labour required to produce like quantities of these 
same commodities or services in 1840; while the wages 
paid for the work which such quantities represent or neces- 

for many years on the public debt the people of the country had 
more than paid off the principal, and were therefore morally justi- 
fied in repudiating the debt. 

* Year by year the public demands more efficient schools, better 
postal facilities, better harbours, improved paving, drainage, and 
lighting of streets, a stricter abatement of nuisances and super- 
vision of infectious disease. All this means a higher standard of 
public well-being, entailing, however, constantly increased public 
outlay. 



212 THE THEORY AND PRACTICE OF TAXATION. 

sitate have been increased from fifty to seventy-five per 
cent and upward. In 1840 an operative in the cotton mills 
of Ehode Island, working thirteen to fourteen hours a day, 
turned off 9,600 yards of standard sheeting in a year; in 
1886 the operative in the same mill made about 30,000 
yards, working ten hours a day. In 1840 the wages were 
$176 a year; in 1886 the wages were $285 a year. 

During the ten years from 1870 to 1880 the increase 
in the number of hands employed in anthracite coal min- 
ing was 32.2 per cent, as compared with an increase of 
product of 82.8 per cent; while in the case of copper dur- 
ing the same period the ratios were 15.8 and 70.8 per cent 
respectively. The whole tendency, therefore, of the modern 
conditions of production is not to entail any greater sacri- 
fice on the part of the taxpayers for the support of the 
Government, but rather to diminish it. " Governments 
have precisely the same interest as their subjects in facili- 
tating production, inasmuch as its increased facility affords 
the means of adding to the quantity of produce at their dis- 
posal without really adding to the weight of taxation; 
whereas, on the contrary, a diminished facility of produc- 
tion must either diminish in an equal degree the produce 
appropriated by government or compel it to lay heavier bur- 
dens on its subjects. Public wealth, in short, is merely a 
portion of private wealth transferred to government, and 
the greater the amount of the latter the greater, of course, 
will be the magnitude of the portion that may be conven- 
iently spared for public purposes." — J. R. McCulloch. 

When Taxation becomes an Evil. — It is not pre- 
tended that taxation, even under a correct system of assess- 
ment and collection, may not under some circumstances be 
an evil. It is an evil when through extraordinary or in- 
judicious expenditures of the state it is excessive and de- 
mands too large a proportion of the annual or concurrent 
income of the people (in the form of rents, interest, profits, 
salaries, and wages), out of which, or out of the annually 
augmented wealth of a country, and not out of accumu- 
lated capital, all taxes ought to be paid, and as a rule are 
paid. The economic rule governing taxation of first im- 
portance laid down by Professor Cossa (Scienza delle Fi- 
nanze) is "that it should, when possible, tax income only, 
whether national or individual, but spare the estate itself." 



TAXATION MAY BE AN EVIL. 213 

If the burden of taxation, or the amount taken, is not 
fully compensated by increased production or increased 
saving, it becomes one of the greatest evils to which a people 
can be subjected; for under such circumstances the means 
of future production will be impaired, encroached upon, 
and the country will necessarily begin to retrograde. 

When the share of the annual product falling to the 
workmen of any country is barely sufficient to support 
life free of taxation, then the burden of taxes begins to 
promote pauperism. It takes that which is necessary to 
existence and the maintenance of energy. This is now 
occurring in Italy. The taxation of Italy probably absorbs 
more than one third part of the product of the country. 
The army is served first, the workmen second, while the 
women become diseased and the children die by lack of 
adequate nourishment. 

Taxation is also an evil, though in a lesser degree, when 
the rate assessed is not the same upon all persons, property, 
and business within the same sphere of (business) com- 
petition; when it is made an instrumentality for effecting 
some other purpose than that of raising revenue, no matter 
how desirable that purpose may be; and when, as in the 
United States, it is largely indirect, and its incidence and 
amount are thereby concealed from the ultimate tax- 
payers.* 

* A most interesting and instructive example of the decay 
in modern times of a considerable state due to radically vicious 
methods of collecting revenue is afforded by the present condition 
of the Asiatic kingdom of Persia. Its typical despotic govern- 
ment, represented by the Shah, annually demands and exacts 
a large amount of money from its subjects to defray the expenses 
of the state, but not more, perhaps, than the resources of the 
country and its people would fairly warrant and sustain, if it were 
collected by intelligent methods. In default, however, of any 
knowledge of how to get revenue without destroying the springs 
of wealth, the method of taxing is so irregular both as to time 
and rate, and so thoroughly unjust and unequal, as to impair 
the value and security of property, prevent accumulation and free 
use of capital, and discourage commerce. A British expert has 
recently reported to his home government that if a qualified Euro- 
pean or American could be placed at the head of the exchequer 
at Teheran, who was allowed such control that no penny exacted 
from the people of the state should be absorbed on its way to the 
treasury, or be taken save in due course of law, he might yet save 
Persia and drain into it a new and vigorous Asiatic population, 



214 THE THEORY AND PRACTICE OF TAXATION. 

The general result of experience is also to the effect 
that when excessive and exceptional taxation has been re- 
sorted to by a state for the purpose of regulating or de- 
stroying industries or traffic, it has rarely been successful. 
The economic and moral lesson deducible from such experi- 
ence may be briefly summarized as follows : 

Whenever a government imposes a tax on any product of 
industry so high as to sufficiently indemnify and reward an 
illicit or illegal production of the same, then such product 
will be illicitly or illegally manufactured; and when that 
point is reached, the losses and penalties consequent upon 
detection and conviction — no matter how great may be the 
one or how severe the other — will be counted in by the 
offenders as a part of the necessary expenses of their busi- 
ness; and the business, if forcibly suppressed in one local- 
ity, will inevitably be renewed and continued in some other. 
It is therefore a matter of the first importance for every 
government, in framing laws for the assessment and col- 
lection of taxes, to endeavour to determine, not only for 
fiscal but also for moral purposes, when the maximum 
revenue point in the case of each tax is reached, and to 
recognise that in going beyond that point the government 
" overreaches " or cheats itself. 

Increase the duties (taxes) on imports beyond a cer- 
tain point, and smuggling springs up as by magic, and the 
most cruel and unusual punishments utterly fail to prevent 
it. American ingenuity was never more fertile or mani- 
fested in a more remarkable manner than in the evasion 
during the years 1864—^68 of a tax, approximating fifteen 
hundred per centum, imposed by the Federal Government 
on the manufacture and sale of distilled spirits, resulting 
in a complete failure on the part of the Government, with 
almost unlimited military resources at command, to en- 
force the law, and a final abandonment and repeal of the 
tax.* The comparatively recent tax imposed by the United 

who would fill its now deserted but fertile plains, and organize 
a commerce in which all the world stood ready to participate and 
furnish the instrumentalities necessary for its development. 

* Out of a consumption of at least fifty million proof gallons 
of distilled spirits of domestic production in the United States 
during the fiscal year 1867-68, the Federal Government collected 
a tax upon less than seven million gallons, the sale of the differ- 



EVASIONS OF TAXATION. 215 

States on oleomargarine, with a view of destroying its 
manufacture and preventing its use as an article of food, 
has been so far ineffectual that its production and consump- 
tion have been greater than they were before the law au- 
thorizing the tax was enacted.* 

More than a century ago Adam Smith pointed out that 
such taxes " tempt persons to violate the laws of their 
country who are frequently incapable of violating those of 
natural justice, and who would have been in every respect 
excellent citizens had not those laws made that a crime 
which Nature never meant to be so." 

Some other fallacies concerning the sphere and influ- 
ence of taxation which have obtained popular credence may 
be here appropriately noticed. 

Thus, it is not infrequently assumed that any injurious 
influences of excessive or unnecessary taxation are largely 
or wholly imaginary, inasmuch as they are really returned 
to the contributors (taxpayers) through the expenditures 
of Government; which, by increasing demand for com- 
modities and services, create or extend markets, maintain 
prices, and enlarge the sphere or opportunity for industrial 
employment, and favour an increase in the supply and cir- 
culation of money. This assumption is obviously but a 
reproduction in another form of the fallacy (before no- 
ticed) that industry can be stimulated by taxation; and 
which in turn finds its antitype in a favourite idea of the 
middle ages, that the destruction or waste of commodities 
" made good for trade " ; and which maxim, it is said, a 
guild of glaziers in Paris practically carried out by en- 
couraging their apprentices to break windows, who may 
have attempted to justify their conduct by asking them- 

ence at the current market rates of the year, less the average cost 
of production, returning to the credit of corruption a sum approxi- 
mating sixty million dollars. 

* The tax on oleomargarine was first imposed in 1886, and, with 
the special taxes on manufacturers and dealers in that product, 
yielded a revenue of $723,948. In 1898 the amount collected from 
the same sources was $1,315,780. The quantity produced rose from 
34,325,527 pounds in 1888 (the first full year of returns) to 
57,516,136 pounds in 1898. A tax, bearing the same objects as 
that on oleomargarine, to control its manufacture, sale, and ex- 
port, was laid in 1897 on "filled cheese," and in 1898 on "mixed 
flour." 



216 THE THEORY AND PRACTICE OF TAXATION. 

selves the question, "What would become of the glazing 
business if nobody ever broke windows ? " 

A general answer to this fallacy is, that to break, spoil, 
or waste by fire, pestilence, war, famine, shipwreck, or in- 
judicious and unnecessary taxation and public expenditure, 
always entails a loss to society; and if these results give 
to certain class interests an opportunity to perform un- 
necessary work, or sell products at an advance over their 
current prices in the world's market, and thereby inflict 
unnecessary and additional taxes on other individuals, it 
can not be regarded as other than an evil, and prejudicial 
to public interests. 

To those who live on the produce of unnecessary taxa- 
tion and correlative governmental expenditure, any con- 
sequent encouragement of industry by increasing demand 
and extension of markets, will very naturally seem to be 
in the highest degree beneficial. But, in order that in- 
dustry may be truly benefited, the market must be real 
and not artificial, or one created by unnecessary taxation 
and expenditure. " It is contradictory to suppose that 
either individuals or states should receive the smallest bene- 
fit from the demand of those whom they have previously 
furnished the means of buying. This, however, is always 
the case with buyers who live on the produce of taxation. 
And to keep up useless regiments and overgrown establish- 
ments, on the pretence of encouraging industry by increas- 
ing demand, is quite as irrational as it would be for a 
shopkeeper to attempt to increase his business and get rich 
by supplying his customers with money to buy his goods." * 

Hamilton (a Scotch economist) puts the case even more 
forcibly. " To argue," he says, "that the money raised in 
taxes, being spent among those who pay it, is therefore no 
loss to them, is no less absurd than the defence of a house- 
breaker who, being convicted of carrying off a merchant's 
money, should plead that he did him no injury, for the 
money would be returned to him in the purchase of the 
commodities in which he dealt." f 

" It is obvious that the services rendered by the public 



* McCulloch, Treatise on the Principles and Practical Influence 
of Taxation, second edition, p. 14. 

f On the National Debt, third edition, p. 35. 



UNNECESSARY TAXATION. 217 

functionaries who receive taxes form the only return made 
to the contributors. And it is undoubtedly true that these 
services are of the highest value, and that, when neither 
the number nor the salaries of those by whom they are 
rendered are unnecessarily large, they constitute a full and 
fair equivalent for the sums expended upon them. But 
whatever is beyond this — whatever is expended in overpay- 
ing public functionaries, or in maintaining such as are un- 
necessary — is wholly lost to the taxpayers, or is not in any 
way compensated to them." * 

" We might as well say that it would be a good thing to 
put snags in the rivers, to fell trees across the roads, to dull 
all our tools, as to say that unnecessary taxation could 
work a blessing," — Prof. W. G. Sumner. 

Some writers of repute have advocated the special im- 
position of taxes on the ground that they act as stimulants 
to industry. M. Gamier entertained this opinion. The 
late J. E. McCulloch, who wrote learnedly on the Prin- 
ciples of Taxation, favoured such practice on the part of 
government, provided the taxation was " moderate." But 
of taxation employed for such object which was not mod- 
erate he wrote as follows : 

" The effect of exorbitant taxes is not to stimulate in- 
dustry, but to destroy it. The stimulus given by excessive 
taxation to industry has been not inaptly compared to the 
stimulus given by the lash to the slave — a stimulus which 
the experience of all ages and nations has proved to be as 
ineffectual as it is inhuman, when compared to that which 
the expectation of improving his condition gives to the 
productive energies of the citizen of the free state." 

The direct beneficial agency not merely of moderate 
but of most excessive taxation, as a stimulant to industry, 
is also obviously a fundamental principle in every so-called 
" protective tariff system." 

Very curiously, the best refutation of these ideas was 
made by the late H. C. Carey, in a Treatise on Wealth, 
published in 1838. After indorsing the statement of Mr. 
McCulloch as to the influence of exorbitant taxation on 
industry, and the correctness of his analogy between the 
stimulus afforded thereby and that imparted by the lash, 

* McCulloch, Treatise on Taxation, p. 14. 
15 



218 THE THEORY AND PRACTICE OP TAXATION. 

he antagonizes the proposition that the effect of even mod- 
erate taxation imposed as a stimulus to industry can be 
in any degree beneficial, by asserting that what is true of 
the influence of exorbitant taxation in this respect " is 
equally true of all unnecessary burdens (of taxation), 
whether great or small." 

" If taxation be a stimulus/' he says, " the advantage 
must increase with its extent, and taking 2s. per week must 
do more good than taking Is. Moderation depends upon 
habit. We think Mr. McCulloch has fallen into the same 
error with the man who attributes increased vigor to two 
glasses of brandy, while he deprecates the drinking of a 
quart as likely to produce intoxication. The man in sound 
health who drinks two glasses will not work as well as he 
who drinks none, but he will do so much better than his 
neighbours who drink by the quart that it may be sup- 
posed that his superiority results from the glasses taken, 
when it really arises out of the six that he has forborne 
to take. If taxation is good, so is the lash : both will make 
people work, but neither will make them work well. The 
moment we admit that taxation in any case tends to 
promote industry, it is impossible to say where we shall 
stop." 

Another fallacy which has obtained credence, especially 
in recent years in the United States and even among its 
legislators, is that the burden of taxation is increased by 
a fall in the prices of commodities which represent the 
work that furnishes the money with which taxes are paid. 
It owes its existence and tolerance to the non-recognition 
of a principle of taxation which has also been thus set 
forth by Mr. J. E. McCulloch : 

" The amount of a tax is not to be estimated by the 
bulk or species of the produce which it transfers from in- 
dividuals to government or to creditors in general, but ex- 
clusively by its value. A heavy tax consists in the abstrac- 
tion of a large value, and a light taxation in the abstraction 
of a small value. When a fall takes place in the cost of 
producing any article, its price necessarily declines in an 
equal degree, and its producers are obliged to dispose of 
a proportionally larger quantity to obtain the means of 
obtaining the same amount of taxes. But it is an obvious 
error to suppose, as is very commonly done, that the burden 



PRICES AND TAX BURDENS. 219 

of taxation is consequently increased. The value paid by 
contributors remains the same, and it is by values and not 
by quantities that the weight of taxation is to be measured. 
If through improvements in agriculture, machinery, or 
any other cause, two quarters of wheat or two yards of 
cloth were produced with the same expenditure of capital 
and labour that is now required to produce one quarter or 
one yard, it would be no hardship to give double the quan- 
tity of wheat or cloth in payment of taxes." * 

A failure to recognise and understand this principle 
has led to much erroneous reasoning on the subject of 
taxation, and finds a curious practical illustration in the 
following record of recent experience. Thus in the so- 
called bimetallic discussion in the United States it has been 
unqualifiedly asserted that, owing to the remarkable de- 
cline in the average prices of general commodities (esti- 
mated at about eighteen per cent from 1867 to 1877, and 
thirty-one per cent from 1867- ? 77 to 1886- ? 88), and which 
in turn has been assumed to have been occasioned by the 
demonetization of silver and consequent appreciation in 
the value or purchasing power of gold, the burden of the 
national debt of the United States and also all private 
debts, especially such as are in the nature of mortgages on 
land or on other productive fixed capital, has been greatly 
increased, inasmuch as a greater effort of labour on an in- 
creased amount of the products of labour — typically cotton 
and iron — had become necessary to liquidate such debts 
and the interest thereon, f The error in such reasoning 
or assumption is found in the circumstance that no con- 
sideration is given or allowance made for the different 



* McCulloch, Treatise on Taxation, second edition, p. 4. The 
wording is a little different. 

t In 1885 a memorial signed by ninety- five members of the 
United States House of Representatives of the Forty-eighth Con- 
gress and presented to the President of the United States contained 
the following statement : " Eighteen million bales of cotton were 
the equivalent in value of the entire interest-bearing national debt 
in 1865 ($2,221,000,000) ; but it will take thirty-five million bales 
at the price of cotton now (1885) to pay the remainder of such debt 
($1,196,000,000). Twenty-five million tons of bar iron would have 
paid the whole debt ($2,674,000,000) in 1865; it will now take 
thirty-five million tons to pay what remains ($1,375,000,000) after 
all that has been paid." 



220 THE THEORY AND PRACTICE OF TAXATION. 

results of labour at the periods of price comparisons, and 
that the real cost of producing the staple commodities of 
the United States, or the effort needed to produce a given 
amount of general merchandise, or the number of days' 
work put into each piece of such merchandise, has on an 
average decreased during these periods more than their 
market prices have decreased, so that instead of the decline 
in the prices of commodities under consideration having 
increased the burden upon labour of national and other 
debts created before such decline, the burden has been 
lessened to just the extent that the average cost of produc- 
ing commodities has declined to a greater degree than 
their average market prices. Thus all authorities are sub- 
stantially agreed that there are few departments of indus- 
trial effort in which the saving of time and work in the 
twenty to thirty years next anterior to 1890 was at least 
forty per cent, and in not a few instances has been much 
greater (in the manufacture of boots and shoes, for ex- 
ample, eighty per cent). In North Carolina the relative 
increase in cotton product and population from 1870 to 
1880 was as 4.5 to 1. With slight changes in the relation 
of labour to product, the cotton crop of the United States 
increased seventy-six per cent between the years 1866 and 
1872, and forty-nine per cent between 1872 and 1886. 
Eecent investigations have shown, in the case of certain 
leading articles in hardware, that a given quantity which 
represented a labour cost in 1870 of a million dollars 
could be afforded in 1894 for a like cost of $444,444. An- 
other striking illustration of the present cheapness of 
manufactured articles per unit and as measured in terms 
of labour payments per hour or day, compared with former 
recent periods, and as the result of present industrial con- 
ditions, is found in the statement that wire nails are now 
so cheap that, if a carpenter drops a nail, it is cheaper to 
let it lie than take time to pick it up ; and the correctness 
of which has been demonstrated as follows : " Assuming 
that it takes a carpenter ten seconds to pick up a nail 
which he has dropped, and that his time is worth thirty 
cents per hour, the recovery of the dropped nail would cost 
0.083 cent. There are two hundred sixpenny nails in a 
pound, and they are worth on an average 1.55 cent per 
pound, making the value of one nail 0.0077 cent. In other 



CONDITIONS IN THE UNITED STATES. 221 

words, it would not pay to pick up ten nails at the assumed 
loss of time and rate of pay of the carpenter." 

On the other hand, wages have increased in the United 
States since 1870 in an approximative ratio with the in- 
crease in the effectiveness of labour in producing commodi- 
ties, and touched the highest point ever known about the 
year 1890. During the same period debtors have gained 
greatly by the decrease in the cost of living, and a conse- 
quently increased opportunity for laying up a surplus for 
meeting tax demands and other purposes. The assump- 
tion that the comparatively recent fall in the price of com- 
modities in the United States has increased the burden of 
taxation upon its people, therefore merits the characteriza- 
tion of being one of the most irrational and fictitious of 
popular economic fallacies. 



CHAPTER X. 

RELATION" OF TAXATION TO THE STATE. 

The next step of importance in this discussion is to 
recognise clearly the relation which the exercise or func- 
tion of taxation, as it has been defined, sustains to the 
state. 

Origin and Justification of Taxation. — The ques- 
tion at once suggests itself, "By what right does that 
entity which we call the state, whatever may be its con- 
crete form, and whether its powers are exercised by a single 
man (Caesar), by a particular class, or by a majority of 
citizens, take from the individual that which hitherto was 
absolutely his, annul his ownership, and convert the thing 
of value to its own use ?"* How happens it that the 
exercise of this right is so absolute that the state requires 
the citizen to set apart from the earnings of his labour a 
certain sum for its use before he applies any of those earn- 
ings to the support of his family ? f 

On this point there has been considerable speculation 
and philosophizing. It has been assumed that there must 
be an actual or implied contract between the state and the 
citizen, in virtue of which the state supplied a certain 
amount of protection to life and property, and for which 
the citizen in return pays an equivalent in money, mer- 

* " Titius is to render to Caesar that which is Caesar's. But when 
Caesar comes to take the shock of wheat or the firstling of the 
flock Titius may well ask, as he gives them up: Why are they 
Caesar's rather than mine? What right to them has Caesar and 
not my neighbour Maevius?" Tyranny in Taxation. Theodore 
Bacon. New-Englander, 1867. 

t The probate judiciary of the State of Connecticut has recently 

held that in the settlement of insolvent estates taxes due prior 

to the assignment of an assigning debtor should be regarded as 

preferred claims, arid as such should be paid in full by the trustee. 

222 



THE STATE AND TAXATION. 223 

chandise, or personal service. There is, however, no his- 
torical example of any such contract. 

Others have sought to refer the origin of this right on 
the part of the state to take the property of the citizen to 
an antecedent right of might, and have assumed that, as 
the ruling power, whether monarch or majority, is phys- 
ically able to take and apply to its own use all that the 
individuals ruled over may call their own, it is therefore 
legitimate and morally correct for it to exercise this right 
and take such part of its subjects' property as it may see fit. 

A third and more plausible theory is, that as all rights 
of property are conventional and not natural, and without 
the intervention of the state by its laws could not be en- 
forced or protected, and, indeed, could hardly be said to 
exist; therefore the state is the source of all title, and the 
individual holds only by grant or sufferance of the state. 
From these premises it follows that the state, in compelling 
contributions from its subjects, or, as is ordinarily ex- 
pressed, in "taxing," is in the position of an absolute 
proprietor who takes simply what is his own. This was 
the theory accepted and practically carried out by all the 
monarchs of Europe in the seventeenth century, or about 
two hundred and fifty years ago, and defended by the best 
and most eminent men of the time, as Bossuet in France 
and most of the great jurists of England under Charles I, 
as was exemplified in the case of John Hampden, who was 
prosecuted for refusing to pay an arbitrary tax known as 
" ship money " ; and the decision in which, by the High 
Court of Exchequer, placed the property of every Eng- 
lishman at the disposal of the crown. It was also so clearly 
expressed by Louis XIV that his words are worthy of exact 
citation. Thus, in a manual which he wrote for the guid- 
ance of his heir and successor, the Dauphin, he says : " I 
hold the place of God. To me belong exclusively the lives 
and fortunes of my people. The nation resides entirely 
in the person of the monarch. Kings are absolute masters, 
and may naturally, fully, and freely dispose of all the 
property possessed by either the clergy or laity, to use at 
all times like wise stewards and according to the needs 
of the state." 

Herbert Spencer refers the growth of revenue, which 
involves the right to take it, from the outset, like the 



224 THE THEORY AND PRACTICE OF TAXATION. 

growth of political headship which it accompanies, directly 
or indirectly, to the results of war. " The property," he 
says, " of conquered enemies — at first goods, cattle, pris- 
oners, and at a later stage land — coming in larger share 
to the leading warrior, increases his predominance. To 
secure his good will, which it is now important to do, pro- 
pitiatory presents and help in labour are given; and these, 
as his power further grows, become periodic and com- 
pulsory. Making him more despotic at the same time 
that it augments his kingdom, continuance of this process 
increases his ability to enforce contributions, alike from 
his original subjects and from tributaries ; while the neces- 
sity for supplies, now to defend his kingdoms, now to in- 
vade adjacent kingdoms, is ever made the plea for increas- 
ing his demands of established kinds and for making new 
ones. Under stress of the alleged needs, portions of their 
goods are taken from subjects whenever they are exposed 
to view for purpose of exchange. And as the primitive 
presents of property and labour, once voluntary and vari- 
able, but becoming compulsory and periodic, are eventually 
commuted into direct taxes; so those portions of the 
trader's goods which were originally given for permission 
to trade, and then seized as of right, come eventually to be 
transformed into percentages of value paid as tolls and 
duties. But to the last as at first, and under free govern- 
ments as under despotic ones, war continues to be the 
usual reason for imposing new taxes or increasing old ones ; 
at the same time that the coercive organization in past 
times developed by war, continues to be the means of ex- 
acting them." * Mr. Spencer further asserts that " in the 
early stages of social evolution nothing answering to reve- 
nue exists." These conclusions of Mr. Spencer seem, how- 
ever, to be singularly imperfect, inasmuch as they do not 
appear to recognise that there can be such things as volun- 
tary or beneficial taxes, or that society in order to exist 
would in the course of time institute taxation, even if 
there had been no war. He does, however, recognise that 
the increasing progress and complexity of civilization, by 

* Abundant illustrations from historical or recent experiences 
of the successive stages of such assumed evolution of taxation are 
given by Mr. Spencer in the chapter On Revenue in his Political 
Institutions, Principles of Sociology, vol. ii, p. 557. 



SOVEREIGNTY AND TAXATION. 225 

continually enlarging its sphere and functions, would con- 
tinually necessitate an increase of taxation. 

All such speculations and theories as to the origin and 
sphere of the rights of government in respect to appropriat- 
ing the property of its subjects or citizens, although of phil- 
osophic interest, are, however, of little practical impor- 
tance.* It is only necessary to recognise that in some form 
the organization or entity which we call the state exists for 
certain definite purposes, even though they be difficult of 
precise limitation ; and to analyze the situation, as we find 
it, to obtain a satisfactory answer to the question at issue. 
For the command of a constant and adequate revenue being 
beyond dispute absolutely essential to the existence of 
organized government, the power to compel or enforce 
contributions from the people governed, or, as it is termed, 
"to tax," is inherent in and an incident of every sover- 
eignty, and rests upon necessity, f The question of the 
obtaining of such revenue obviously, therefore, is the ques- 
tion of first importance in the economy of a state; the one 
in comparison with which all others are subordinate. For 
without revenue (and a government never has any resources 
except what it has obtained from the people), regularly 

* Edmund Burke, the great Irish statesman, is on record as 
characterizing any discussion of the abstract right of taxation 
in place of the actual facts of the situation, as belonging to the 
domain of political metaphysics, " a great Serbonian bog in which 
armies whole have sunk," and that it was by fighting for such 
" a phantom, a quiddity, a theory that wants not only a substance 
but even a name," that English statesmen threw away their Ameri- 
can colonies. 

f " When we ask, What right has the state to infringe upon 
man's natural freedom? we are involved in the difficulty that 
there are no rights, in the strict sense of the term, antecedent to 
the state. All rights that we know anything about are either legal 
or moral. The right of the state to govern man can not be derived 
from law, for law is the creature of the state. If it is a moral 
right, it must rest on the same basis on which all morality rests, 
and this must be either conscience, or divine revelation, or utility. 
Of course, consent has nothing to do with morality. Conscience, 
furthermore, will not do as a basis for the state, for conscience 
does not enlighten us further than to let us know that we ought 
to obey the state if it is right to do so. Revelation, also, answered 
only so long as a direct and miraculous connection was believed 
to exist between human and divine authority. This leaves nothing 
but utility as the basis for the moral right of the state to inter- 
fere with man's natural freedom." — Anonymous. 



226 THE THEORY AND PRACTICE OF TAXATION. 

and uniformly obtainable, no governmental machinery for 
the protection of life and property, through the dispensing 
of justice and the providing for the common defence, could 
long be maintained; and in default thereof production 
would stop or be reduced to a minimum, accumulations 
would cease or become speedily exhausted, and civilization 
would inevitably give place to barbarism and the wilder- 
ness. For like reasons also, or as the old-time Latin maxim, 
" salus populi suprema lex" concretely expresses it, the 
state holds command over the lives and liberties of its 
citizens equally as it does over their fortunes. In fact, 
the sovereignty of a state consists and exemplifies itself in 
the power to abridge the liberty of the individual citizen 
and to take his property; and the character of every gov- 
ernment is mainly determined by the intent and purpose 
for which these two great functions from which all its 
force proceeds are exercised. 

The Sphere of Taxation. — The sequence of these 
premises is no less important, or rather of transcendent im- 
portance; for if the power of taxation is an incident of 
sovereignty, as it confessedly is, then the right to exercise 
that power must be coextensive with that of which it is the 
incident; or, in other words, as the power of every com- 
plete sovereignty over the persons and property of its sub- 
jects is unlimited, the power, therefore, in every such sover- 
eignty to compel contributions for the service of the state, 
or, as we term it, " to tax" must be unrestricted. " The 
power to tax is therefore the strongest and most pervading 
of all the powers of government, reaching directly or in- 
directly to all classes." * 

The power to tax, said Chief-Justice Marshall, in giv- 
ing the opinion of the United States Supreme Court deny- 
ing the right of Maryland to tax the Bank of the United 
States (McCulloch vs. Maryland, 4 Wheaton, pp. 316-431), 
" involves the power to destroy, and may be legitimately 
exercised on the objects to which it is applicable to the 
utmost extent to which the Government may choose to 
carry it." In the case of Weston vs. the City of Charles- 
ton, the same court, by the same eminent authority, also 

* United States Supreme Court ; Loan Association vs. Topeka, 
20 Wallace, 655. 



EXTENT OP POWER. 227 

held that " if the right to impose a tax exists, it is a right 
which, in its nature, acknowledges no limits. It may be 
carried to any extent within the jurisdiction of the State 
or corporation which imposes it, which the will of such 
State or corporation may prescribe" And in a more recent 
case (Loan Association vs. Topeka, 20 Wallace) the court, 
through the late Justice Miller, again expressed itself to 
the same effect as follows : " Given a purpose or object for 
which taxation may be lawfully used, and the extent of its 
exercise is in its very nature unlimited." 

The government of a complete sovereignty can there- 
fore tax all that it can lay hands on to enforce the tax — 
men, women, and children; all property and business — 
and the power may be exercised again and again until the 
subject taxed is exhausted or the privilege can be no longer 
exercised. This statement finds abundant illustration in 
history of people absolutely impoverished by taxation, and 
of individuals who have been sold into slavery because of 
their inability to pay the taxes that the state or ruling 
power had assessed upon them. The popular idea is that 
such examples of the extreme exercise of power on the part 
of the state to compel contributions have passed into his- 
tory; but this is not the case. In every purely despotic 
Government there is no limitation on its exercise except 
such as arises from the inability of the subject to con- 
tribute. The head of the state — shah, czar, or emperor — 
decides how much shall be exacted and the time and man- 
ner of exaction; and not infrequently the amount taken 
is only a little short of what is necessary to leave to the 
producer in order to enable him to maintain a mere ani- 
mal existence. Thus in Eussia the present governmental 
exaction — under the name of taxes — from the agricultural 
peasant is understood to amount to about forty-five per 
cent of his annual product or earnings. 

In 1890 the excise taxation of Eussia — which is mainly 
levied upon distilled spirits and other alcoholic drinks, 
tobacco, sugar, kerosene, and matches — is reported to have 
amounted to seventy-five per cent of the value of the arti- 
cles taxed. On the other hand, the Eussian customs duties 
in the same year averaged but thirty-four per cent of the 
import value of the foreign goods imported — a circum- 
stance that may find an explanation in the fact that a large 



228 THE THEORY AND PRACTICE OP TAXATION. 

proportion of the imports of Eussia is in the nature of ma- 
chinery or crude materials for industrial use or elabora- 
tion, and apart from this the requirements of the masses in 
Eussia for foreign products are comparatively small. 

In Egypt until quite recently, as has been already 
shown, the annual exactions from its peasantry — the fel- 
lahs — under the name of taxation produced an extremity 
of want which closely bordered on starvation. 

In Italy, which in ancient times was regarded, as it is 
in fact to-day, potentially the richest country in Europe, 
and although its present Government can not fairly be 
characterized as despotic, its agriculture is burdened with 
state exactions that are reported as absorbing from one 
third to one half of the value of its annual product. The 
existing debt of the country, created largely by enormous 
military and naval expenditures, entails an annual in- 
terest charge of about $3.75 per head of its population.* 

Another disastrous interference with the prosperity of 
the state is the system of taxing all business enterprises, 
after they have been established three years, at rates which 

* A national tax on movable (personal) property — the ricchezza 
mobile — is levied on the poorest of the Italian people; and often 
the bed has to be sold or the saucepans pawned to pay it. 

The gate tax, dazio consumo, best known to English ears as 
octroi, which has been the especial object of the Sicilian fury, 
is a curse to the whole land. Nothing can pass the gates of any 
city or town without paying this odious and inquisitorial impost. 
Strings of cattle and of carts wait outside from midnight to 
morning, the poor beasts lying down in the winter mud and sum- 
mer dust. Half the life of the country people is consumed in this 
senseless, cruel stoppage and struggle at the gates; a poor old 
woman can not take an egg her hen has laid, or a bit of spinning 
she has done, through the gates without paying for them. The 
wretched live poultry wait half a day and a whole night cooped 
up in stifling crates or hung neck downward in a bunch on a 
nail; the oxen and calves are kept without food three or four 
days before their passage through the gates, that they may weigh 
less when put in the scales. By this insensate method of taxation 
all the food taken into the cities and towns is deteriorated. The 
prating and interfering officers of hygiene do not attend to this, 
the greatest danger of all to health — that is, inflamed and injured 
animal and fowl carcasses sent into the markets. The municipali- 
ties exact the last centime from their prey; whole families are 
ruined and disappear through the exactions of their communes, 
who persist in squeezing what is already drained dry as a bone. — 
The Italy of To-day, in Fortnightly Review, February, 1894, P- 230. 



EXCESSIVE TAXATION. 229 

in some cases swamp the profits. And in addition to such 
disturbing elements there is undoubtedly an all-pervading 
evasion for a consideration of all forms of taxation by the 
functionaries whose business it is to collect the revenue. 
A very general feeling, therefore, naturally prevails that 
it is a laudable thing to cheat or rather rob the Govern- 
ment whenever opportunity offers.* 

A more recent instance of excessive taxation is to be 
found in the island of Cuba, where the exactions of govern- 
ment and the known dishonesty attending their collection 
drove the planters into revolt. The low price of sugar in 
the markets of the United States made it impossible to 
endure demands that were easily met when the profits of 
sugar planting were large. 

Limitations in the Sphere of Taxation. — Atten- 
tion is next asked to the fact that the foregoing proposi- 

* It is enough to see how railways are built by the Government 
of Italy to form an idea of the openings afforded for rascality 
and fraud in their construction. " They are not built by contract, 
but on estimate. A building company estimates that a certain 
line will cost a certain sum and receives the job, which is always 
indeed a ' job.' The Government guarantees a certain income per 
kilometre, and the constructor makes the road as long as possible; 
but when the grant (which is made in bonds of the state) for 
the amount authorized is exhausted, the constructor coolly tells 
the ministry that the road must stop there unless the ministry 
makes another grant, which is of course done, and the invariable 
result is that the original estimate is nearly, or quite, or even 
more than doubled; with the consequence that none of the roads, 
as they are made, ever pay their expenses and interest on their 
cost of construction. More than that, they are so burdened with 
deadheads that it is estimated that only forty per cent of the 
passengers they carry pay full fare, the remaining sixty per cent 
paying from nothing up to seventy-five per cent of the fare. Depu- 
ties and senators travel free everywhere in the kingdom, but as 
the state pays a block sum for their privilege, it is not a dead 
loss, though, as every deputy who travels insists on having a 
whole compartment for himself, the road becomes anything but 
a profitable one. Every employee of the great systems of Italian 
railways has the right to make three journeys a year on each 
one, where he likes, and with his family, and the consequence is 
that some of them ruin themselves taking long railway journeys 
for which they have not the money to pay the expenses. And 
they are sixty thousand, with as many more pensioned off who 
have the same privilege ; and, as all travellers know, the railway 
fare is the smallest part of the expense of a journey." — New York 
Nation, June 25, 1896. 



230 THE THEORY AND PRACTICE OF TAXATION. 

tions respecting the unlimited power of a state to compel 
contributions, or to tax, and which (as shown) have re- 
ceived the sanction of the highest judicial authorities, are 
predicated on the assumption of complete sovereignty on 
the part of the state. But in a truly free state such sover- 
eignty does not exist, and the conditions which make it 
free necessarily preclude its existence. Thus in every such 
state the two great functions which constitute its sover- 
eignty, namely, the right to interfere with the liberty of 
the citizen and with his property, have been called into 
existence and can be rightfully exercised for certain pur- 
poses only, which admit of precise definition. In such a 
state the fundamental and essential purpose of government 
is not to abridge the liberty of the individual citizen in 
respect to his person, or his possession and use of property, 
but to increase it; and this result (overlooked in a great 
degree by economists and legislators), as has already been 
pointed out, can only be attained by taking a part of the 
property of the citizen which the existence of the state 
has enabled him to acquire, for the purpose of maintain- 
ing instrumentalities for preventing any encroachment 
upon his rightful liberty and punishing those who attempt 
it. In fact, in every free state there are limitations on the 
exercise of the taxing power, growing out of the structure 
of its government, or because it is free ; or, as Chief- Justice 
Marshall expressed it, " by the implied reservations of in- 
dividual rights growing out of the nature of a free govern- 
ment, and the maintenance of which is essential to its 
existence/ 7 

From the first dawn among the Anglo-Saxon race of 
the idea of a constitutional or free government, the neces- 
sity of establishing an inhibition on the power of govern- 
ment, in respect to the taking of property, was recognised ; 
expressed or implied in the Magna Charta, and subse- 
quently incorporated in the Federal Constitution, through 
its provisions respecting the equality of taxation, and that 
private property shall under no circumstances be taken 
for public uses without just compensation. 

The necessity of a free state may, however, be so great 
— i. e., in the prosecution of war for national defence, or 
the maintenance of national existence — as to require that 
the entire resources of its people should be at the disposal 



LIMITATIONS ON TAXATION. 231 

of the Government, and compel a resort to taxation, even 
to the exhaustion of everything — property and business — 
which may be its objective ; and in this sense — i. e., for the 
preservation of individual liberty and property — and in 
this sense only, is involved any inherent power or right 
in taxation to destroy. The nature of the principle in- 
volved also finds illustration in the circumstance that mu- 
nicipal authorities are warranted, in the case of extensive 
conflagrations, in absolutely destroying large amounts of 
property in "the shape of buildings and their contents, in 
order to preserve a much larger amount of like property 
from destruction. The principle under discussion would 
not accordingly justify the use of taxation in time of peace 
(as has been exercised by the Federal Government of the 
United States) for the primary purpose of destruction, 
and not for revenue or the preservation of property. Clear- 
ly, if this right of taxation is unlimited, the property of 
every citizen would be subject to the absolute disposition 
and control of the depositary of power in the state for the 
time being; and the recognition or non-recognition of such 
limitation marks, as before pointed out, more than any 
other one thing, the dividing line between a free govern- 
ment and a despotism.* 

Probably the most weighty and concrete judicial opin- 
ion on this subject was that given by the Supreme Court 
of the United States in 1874 in the now celebrated case of 
the Loan Association vs. Topeka, 20 Wallace, in which the 
late Justice Miller, with the substantial concurrence of his 
associates, indorsed and amplified the opinion of Chief- 

* " The dictum of Chief-Justice Marshall, used by this distin- 
guished jurist in the heat of argument, has been adopted by many 
courts as justifying the uncontrolled exercise of the taxing power. 
A slight consideration will not justify the dictum. The proposition 
that the power to tax is the power to destroy is in opposition to 
the fundamental principles of a free government. It asserts the 
broad doctrine that the power to tax, one of the legislative powers, 
is unlimited and arbitrary. It is claimed that there is no such 
thing as arbitrary power in this country: that the form of gov- 
ernment being republican, those who exercise the powers of gov- 
ernment, whether executive, legislative, or judicial, are clothed 
with a trust which is not to be executed in accordance with a 
mere whim, or in an arbitrary manner, but according to the pur- 
pose of its creation." — Bitrroughs's Law of Taxation, 1877. 



232 THE THEORY AND PRACTICE OF TAXATION. 

Justice Marshall touching the reservation of individual 
rights under a free government as follows : 

" It must be conceded," he said, " that there are rights 
in every free government beyond the control of the state. 
A government which recognised no such rights, which held 
the lives, the liberty, and the property of its citizens sub- 
ject at all times to the absolute disposition and unbounded 
control of even the most democratic depositary of power, 
is after all but a despotism. The theory of our govern- 
ments, State and national, is opposed to the deposit of 
unlimited power anywhere. The executive, the legislative, 
and the judicial branches of these governments are all of 
limited and defined powers. There are limitations of such 
powers which grow out of the essential nature of all free 
governments — implied reservations of individual rights, 
without which the social compact could not exist, which 
are respected by all governments entitled to the name. . . . 
Of all the powers conferred upon the Government that of 
taxation is most liable to abuse. Given a purpose or object 
for which taxation may be lawfully used, and the extent 
of its exercise is in its very nature unlimited. This power 
can as readily be employed against one class of individuals 
and in favour of another, so as to ruin the one class and 
give unlimited wealth and prosperity to the other, if there 
are no implied limitations of the uses for which the power 
may be exercised. To lay with one hand the power of the 
Government on the property of the citizen, and with the 
other bestow it upon favoured individuals to aid private 
enterprises and build up private fortunes, is none the less 
robbery because it is done under the forms of the law and 
is called taxation. This is not legislation. It is a decree 
under legislative forms." And in the same case the same 
court declared that " the whole theory of our governments 
— State and national — is opposed to the deposit of un- 
limited power anywhere." 

No one would probably question that if an assemblage 
of men reasonably intelligent — though not versed in law, 
political economy, or the teachings of social science — were 
to come together for the purpose of founding a state de 
novo, they would, while recognising at once, and as it were 
instinctively, the necessity of insuring to the government 
of such state a revenue adequate to its support, never even 



NEW ENGLAND PLANTATIONS. 233 

so much as dream for one moment of intrusting to it a 
power to take the property of any individual member of 
such assemblage, except so far as might be absolutely neces- 
sary to carry out and fulfil the purposes for which it was 
proposed to call the state into existence. They would be 
mentally blind if they did not see at once that in intrusting 
to that state a power of unlimited intereference with the 
citizen's right to property, they would create not a free 
government but a despotism. 

The question may be here naturally asked, Is there any 
record in history of any assemblage of the founders of a 
state which discussed this subject, or took definite action in 
respect to it ? In answer it may be said that the two most 
striking assemblages in history which resulted in the forma- 
tion of states, and of which any record is preserved, occurred 
in connection with the first settlements of New England, 
and that which resulted in the formation of the Federal 
Constitution and the creation of the nationality of the 
United States. The assertion would hardly be warranted 
that the early plantations of New England were formal 
assemblages gathered together for the avowed purpose of 
forming a state. They were, in fact, land companies, and 
so far as the law then existing permitted, were incorpo- 
rated as such. This act of incorporation, derived from a 
corporation created by James I of England in 1606, and 
known as the Plymouth Company, was in the first instance 
and at once used as the basis for forming a political organi- 
zation by the members of a land company or plantation. 
The necessity of a revenue to defray the expenses of the 
organization or incipient government, and in default of 
which there would be no adequate protection to persons 
and property, or, what is the same thing, no civilization, 
was at once recognised; and probably the very first act of 
the assemblage of the members of the company, after the 
selection of persons to exercise authority, was to authorize 
the levy of taxes. These taxes were assessed and collected 
in all respects as they are now in the great States that have 
been the outcome of these feeble plantations, through what 
may be termed a process of political evolution. That is, 
the individual members of the various communities or 
their authorized representatives met in their " General 
Court/' as it was called, made appropriations, and, in 
16 



234 THE THEORY AND PRACTICE OF TAXATION. 

order to pay them, levied what they termed a "rate" or 
assessment. This levy was put into the hands of a con- 
stable, who proceeded to enforce or collect the tax, either 
in the form of work or commodities or money. There is 
furthermore no indication in the records of these early 
times of any limitation as to the extent or degree of assess- 
ment, and for the very obvious reason that it never then 
occurred to any one that the power of taxation could pos- 
sibly be used for the destruction of private property or 
controlling the acquisition and distribution of property — 
the inventions of a later period. The taxation of those 
days was necessarily of the crudest possible character. It 
fell almost exclusively on real property, and what was 
manifestly tangible and visible, for the very good reason 
that there was very little of what is now called personal 
property in existence — that is, there were no credit or paper 
representatives of property, but everything in the nature 
of property existed in the form of land, slaves, houses, ani- 
mals, agricultural products, tools, or furniture.* 

The record of the assemblage (convention) that drafted 
the Constitution, which by adoption by the parties (States) 
thereto called the United States into existence as a nation, 
on this subject of guarding and limiting the taxing power 
on the part of the prospective State or Government which 
they proposed to create, is comparatively full and com- 
plete. The Eevolution, which involved the renouncing of 
all allegiance of the British-American colonies to the 
mother country, had its origin in unjust taxation; and in 
the Declaration of Independence this fact was made con- 
spicuous among the reasons that were relied on by the 
colonies to justify their action in the opinion of mankind. 
The attempt in 1778 to establish a General Government 
by the union of all the colonies under certain conditions, 
known as Articles of Confederation, was found after a 
few years of experience to be wholly lacking in all the ele- 
ments of strength and stability, through the lack of any 
proper adjustment of the power of taxation; thereby en- 
tailing an almost complete inefficiency of sovereignty. 
Thus, there was no power in the Congress of the Confed- 
eration to raise money by taxation ; but the Confederation 

* See note at the end of this chapter. 



REQUISITIONS AND TAXATION. 235 

depended for revenue upon requisitions on the several 
States, with which the States might comply or not, as they 
chose, and with which they generally did choose not to 
comply, either promptly or fully, if at all. Some of the 
States levied duties on the imports of merchandise at the 
expense of their neighbours ; and adjacent ports in differ- 
ent States competed with each other by arbitrarily vary- 
ing the rates on imports, as the Congress of the Confedera- 
tion had no authority to regulate commerce, or legislate on 
this subject for the whole country.* The result was, as Mr. 
Madison expressed it, that "the Federal authority had 
ceased to be respected abroad, while at home it had lost all 
confidence and credit." It was to remedy this one radical 
infirmity, more than any other, that the present Constitu- 
tion was projected and formed. Other great improvements 
in the Articles of Confederation were contemplated and 
made in the Constitution when it was formed, but the most 
important of all was in the regulation of taxation. Hamil- 
ton, who drafted the address to the States inviting them to 
send delegates to the convention by which it was formed, 
wrote, in The Federalist, "The power of taxation is the 
most important of the authorities proposed to be conferred 
on the TJnion." 

The necessity of conferring adequate power in this par- 
ticular upon the new Government which it was proposed 
to create was admitted by all ; and yet there was no power 
which the people were more determined to guard, so that 
it could never be arbitrarily or unjustly exercised. And if 
it had not been supposed that the provisions of the new 
Constitution furnished ample security against any such 
action, not one of the States would have assented to its 
ratification. 

The preamble of the Constitution asserts, almost in the 
first instance, that the object of its formation was to " estab- 

* The author of The Federalist (No. VII) refers to the situation 
of New York, as compared with that of Connecticut and New 
Jersey, as affording an example of the opportunities which some 
States had under the Confederation of rendering others tributary 
by a monopoly of the taxes on imports, and said that New York 
would neither be willing nor able to forego the advantage of levy- 
ing duties on importations, a large part of which must be neces- 
sarily paid by the individuals of the other two States in their 
capacity of consumers. 



236 THE THEORY AND PRACTICE OF TAXATION. 

lish justice/' an obvious correlative of which is that there 
must be equality, and no discrimination in taxation as 
respects the same persons or things. In its Article I 
(second section) it next provided that " representatives (in 
Congress) and direct taxes shall be apportioned among 
the several States according to their respective numbers, 
excluding Indians not taxed." The explanation of this 
provision, which now seems singular, is undoubtedly to 
be found in the assumption of the framers of the Consti- 
tution that taxation in the future, as it had been in the 
past, would be mainly direct in its assessment and inci- 
dence; and that wealth was so equitably distributed in the 
colonies (as it was at that time), and, as Roger Sherman, 
of Connecticut, expressed it, " the number of people alone " 
was " the best rate of measuring wealth." And on such 
supposition the absolute requirement of a strict apportion- 
ment of taxation according to population, with an inherent 
penalty of loss in congressional representation as the re- 
sult of evasion, was undoubtedly regarded as a safeguard 
against unjust or discriminating taxation. 

Next, in section 8, Article I, after empowering Con- 
gress "to lay and collect taxes, duties, imposts, and ex- 
cises," to pay the debts and provide for the common defence 
and general welfare of the United States, was added an- 
other provision, the like of which does not find an exact 
counterpart in any political constitution or statute of 
which there is historical record — namely, that " all duties, 
imposts, and excises shall be uniform throughout the 
United States." This provision is one of the first im- 
portance. It would seem that there could be no doubt 
that the framers of the Constitution, having specially 
in view the fact that, under the Articles of Confedera- 
tion, the several States endeavoured to tax everything be- 
longing to every other State that came within their ter- 
ritorial jurisdiction, and that there was no authority on 
the part of the then General Government to prevent such 
action, did not mean that the entity, called a State, they 
were about to create, should have any power of discriminat- 
ing in respect to the imposition of duties, imposts, and 
excises in any degree; fully recognising that the moment 
a State or government thus discriminates it passes the 
line of distinction between a free government and one that 



RESTRICTIONS ON EXERCISE. 237 

is not free. It is to be further noted that the words "to 
pay the debts and provide for the common defence and 
general welfare of the United States" should also be re- 
garded in the light of a limitation of the purpose for which 
the taxes, etc. (authorized in the opening words of the 
section), may be laid and collected. This view was taken 
and strongly presented by Mr. Jefferson in 1791, shortly 
after the adoption of the Constitution. He says : " To lay 
taxes to provide for the general welfare of the United 
States, that is to say, 'to lay taxes for the purpose of 
providing for the general welfare/ For the laying of 
taxes is the power, and the general welfare the purpose, for 
which the power is to be exercised. They are not to lay 
taxes ad libitum for any purpose they please; but only to 
pay the debts or provide for the welfare of the Union. In 
like manner they are not to do anything they please to pro- 
vide for the general welfare, but are to lay taxes for that 
purpose. To consider the latter phrase, not as describing 
the purpose of the first, but as giving a distinct and inde- 
pendent power to do any act they please, which might be 
for the good of the union, would render all the preceding 
and subsequent enumeration of power completely useless." * 
Finally, there was added by amendment to the Consti- 
tution the following provision, which, although implied in 
the Magna Charta, had not been previously so explicitly 
expressed in the Constitution or statutes of any other 
State : " Nor shall private property be taken for public use 
without just compensation." Obviously this provision con- 
stitutes another limitation on the power of Congress in 
respect to the taking of private property for public use 
by taxation or any other method. In a case involving the 
bearings of this provision on the taxation of a citizen of 
New Jersey, the Supreme Court of that State analyzed 
and interpreted its meaning as follows : " A tax upon the 
person or property of A, B, and C individually, whether 
designated by name or in any other way, which is in excess 
of an equal apportionment among the persons or property 
of the class of persons or kind of property subject to this 
taxation is, to the extent of such excess, the taking of pri- 

* From Jefferson's opinion on the constitutionality of a national 
bank, written in February, 1791. 



238 THE THEORY AND PRACTICE OP TAXATION. 

vate property for a public use without compensation. The 
process is one of confiscation and not of taxation." — 36 
New Jersey, p. 66, 1872. 

It is certain, therefore, that in at least one assemblage 
for the purpose of creating a State — namely, the Federal 
Convention — its members clearly recognised the incompati- 
bility of the possession and exercise of an unlimited power 
of taxation by a State and the coexistence of a f ree^govern- 
ment. 

Eight of Eminent Domain. — Apart from the right of 
a State to take private property for its use by taxation, 
the State may also legitimately take such property when 
the interest of the public requires it, through what is called 
the law or right of eminent domain. The distinction be- 
tween the power of taxation and the power of eminent do- 
main is, however, clear and well defined. An appropria- 
tion of property under the right of eminent domain is a 
forced sale which its owner is compelled to make for the 
public good, and for which a pecuniary consideration equal 
to the estimated full value of what is taken is due from the 
State. And the exaction can not be considered as a tax 
" unless similar contributions are made by the public itself, 
or be exacted rather by the public will, from such con- 
stituent members of the same community as own the same 
kind of property." On the other hand, no pecuniary con- 
sideration is paid when money is demanded under the 
power of taxation, the benefits which the taxpayer is 
assumed to receive being indirect. 

An Important Imperfection or Omission in the 
Federal Constitution. — Any discussion of the sphere of 
taxation in the United States would be incomplete that 
failed to recognise a feature, in the way of imperfection or 
serious omission, in the Federal Constitution, that hitherto 
has not attracted the attention it deserves. All powers in- 
herent in the Constitution of the United States were de- 
rived from the States, and granted by them in their acts 
of ratification ; and " the powers not delegated to the United 
States by the Constitution, nor prohibited by it to the 
States, are reserved to the States respectively or to the 
people." — Article X, Constitutional Amendments. 

As has been already pointed out, the convention that 
framed the Constitution was especially solicitous and care- 



RIGHT OF EMINENT DOMAIN. 239 

ful to guard and limit the power of taxation on the part 
of the new Government which it was proposed to create, 
so that it could never be arbitrarily or unjustly exercised. 
They anticipated in action the aphorism of John Stuart 
Mill, that " men do not need political rights in order that 
they may govern, but in order that they may not be mis- 
governed " ; for, as was truly said by Guizot, " a consti- 
tution is only a device for turning ordinary mortals into 
tolerable monarchs." At the same time, the convention 
practically omitted to impose any limit or restriction on 
the exercise of the power of appropriating private property 
on the part of the States ; or, as Chancellor Kent expressed 
it in his Commentaries on the Constitution, they left " to 
a State the command of all its resources and the unimpaired 
power of taxing the people and property of the State." 
On this point the only direct provisions of the Constitu- 
tion are that neither the Federal nor State governments 
shall take private property for public uses — i. e., by taxa- 
tion or right of eminent domain — without due compensa- 
tion; and that no State, without the consent of Congress, 
shall lay any imposts or duties on imports or exports. By 
repeated decisions of the United States Supreme Court, 
another provision has been substantially ingrafted in the 
Constitution — to wit, that neither the Federal Govern- 
ment nor the governments of the States shall tax any of 
the instrumentalities or exclusive property of the other. 
The result is that, except for possible provisions in the 
Constitutions of the several States, their respective legis- 
lative assemblies may regulate, restrict, or appropriate the 
property of its citizens to an unlimited extent, and may 
delegate this sovereign power to local municipal corpora- 
tions created by them. In short, in virtue of the power 
of levying unlimited taxes, the power of the Legislatures 
of the States that make up the Federal Union is as absolute 
as that of the Czar of Russia or the Sultan of Turkey. Not 
only may they take in this form all the property in the 
commonwealth, but also the property of its citizens in other 
countries. There is no Federal constitutional hindrance 
to their taxing, to any amount, real estate in any other 
State or country owned by citizens resident within their 
territorial jurisdiction. The constitutional provision that 
private property must be paid for when taken for public 



24:0 THE THEORY AND PRACTICE OF TAXATION. 

uses mainly refers, in the States, to the taking of land 
for highways and other similar acts of necessity by emi- 
nent domain.* 

How little the people of the United States recognise 
the fact that they are living under a dual form of govern- 
ment, with like powers to some extent, especially in respect 
to the exercise of taxation, finds an illustration in the fol- 
lowing incident : The question was recently put to the 
writer by a gentleman who had filled with ability the office 
of Governor of one of the leading States of the Federal 
Union, how it happened that the Federal Government could 
impose on him an income tax, and his own State, at the 
same time, assess him with not only another like income 
tax, but also with a tax on the property from which his 
income was derived? The idea of a dual government and 
its inconveniences, and that the Congress of the Federal 
Government had not cared to remedy the latter, had not 
occurred to the interrogator. 

Had the power of the States to take money by taxation 
from their people been limited at the time of the formation 
of the Federal Union by constitutional provisions, the in- 

* " There is nothing in the Constitution of the State of New 
York which requires that taxation shall be general, so as to em- 
brace all taxable persons in the State, or within any district of 
the State; or that it shall be equal, or that it shall be in propor- 
tion to the value of the property of the person taxed, or that it 
shall not be apportioned according to the benefit which each tax- 
payer is supposed to receive from the object on which the tax is 
expended." — People ex rel. Griffin vs. Mayer, 4 N. Y., 419, 1851. 

" There is no constitutional limitation upon the legislative 
power to tax the persons and property of individuals within the 
State. The power may be exercised to pay debts contracted be- 
fore the property-holder comes within the jurisdiction." — Pam- 
pelly vs. Village of Oswego, Ct. of App., 1863, N. Y. 

"Unless restrained by provisions of the Federal Constitution, 
the power of the State as to the mode, form, and extent of taxa- 
tion is unlimited when the subjects to which it applies are within 
her jurisdiction." — Kirtland vs. Hotchkiss, Connecticut. 

" The Legislature can constitutionally impose a tax on all 
watches, pianos, carriages, dogs, spirituous liquors, or other chat- 
tels without reference to their value. It can impose an arbitrary 
tax upon any avocation or business without estimating its vol- 
ume or value." — People vs. E qui table Trust Co., of New London, 
Conn., 1887; System of Taxation in the State of New York, pre- 
pared by Hon. Julien T. Davies, at request of a committee of the 
Legislature, 1888. 



EXTRAVAGANT EXPENDITURES. 241 

jury and disgrace of State repudiation might have been 
wholly avoided, and much wasteful extravagance checked. 

" Within an hour's ride from the city of New York 
several towns can be reached that were bankrupted by 
undertaking c public works upon a magnificent scale/ The 
number of Western communities that have been ruined 
from the same cause is countless. A very great number 
of people in the Eastern States, both poor and of the mid- 
dle class, have been impoverished by the sudden check to 
the prosperity of these communities. Nor is any severer 
tax imposed upon any class than that which is paid by 
those who have only their wages to live upon, when they 
are deprived of these by the collapse of municipal credit 
and the consequent sudden stop to extravagant expendi- 
ture. The average cost of the pensions paid by the United 
States is ten to twelve dollars a year to every family in the 
country, and in many cases the pension charge alone is equal 
to half a month's or even to a month's wages. Not a few of 
the governments of the earth are now insolvent because of 
excessive expenditures upon public works. In South Amer- 
ica and Australia, extravagant undertakings of this kind 
have caused widespread ruin and distress ; and the poor of 
several other nations are likely to find out eventually that 
the alleviation of temporary distress by governmental ex- 
penditure of capital is like keeping off the cold by burning 
down the house." * 

That the State governments should have bestowed the 
unlimited and imperial power of taxation upon city govern- 
ments, and given up to their use and control the entire 
property of the citizens, is an extraordinary abuse of trust 
and a renunciation of the true functions of government. 
As a result of this policy these delegated governments have, 
within a comparatively recent period, absorbed for alleged 
public uses a large proportion of the property of the citi- 
zens, to the estimated extent in some instances of more than 
one third — that is, the usufruct (right of using and en- 
joying) — and the American citizen has to-day no consti- 
tutional or legal remedy. " No such plunder was ever 
sanctioned or practised before in the history of civilized 
governments. That it has been possible in the United 

* D. MacG. Means, in The Forum, 1894. 



242 THE THEORY AND PRACTICE OF TAXATION. 

States argues the gravest defect in its political system. 
That a check is needed of the most absolute kind is recog- 
nised by all thoughtful men. Such check can only be had 
from the Legislatures of the States, who can not be too 
prompt in correcting the evils resulting from this extraor- 
dinary surrender of their supreme jurisdiction on the vital 
subject of taxation. The Legislature holds the public 
purse, and is false to its trust as its custodian when it 
authorizes corporations to put their hands, unwatched, into 
this purse and take from it, uncounted, all that their ex- 
travagance and cupidity desire. It is no apology that city 
governments are chosen by popular vote. It is the essence 
of our government that personal rights are, by our Con- 
stitution, wholly independent of the voting power, and cer- 
tainly property should be equally so protected." 

The question here naturally arises, How happened it 
that the framers of the Constitution and founders of our 
Government, while carefully denning and limiting the 
powers of the Federal Government in respect to the taking 
of property through taxation, omitted to make any like 
provisions applicable to the States? An answer is, that 
it was probably an oversight, favoured by the circumstance 
that there was no English precedent for such provisions. 
At the time of the Eevolution it was, and ever since has 
been, the occupation and duty of the British House of Com- 
mons to limit and, if considered expedient, resist the pecun- 
iary demands of the crown, and latterly of its ministers; 
and this occupation and duty were never delegated with- 
out restriction to any subordinate legislative assemblage. 
It might have been, and probably was, assumed by the 
framers of the Federal Constitution, that the several States 
in making their Constitutions would have followed the 
precedents respecting the rights and duties of taxation 
that they (the framers) had established ; and, if the several 
Legislatures of the States had been confined to these rights 
and duties, and had never delegated them without restric- 
tion to the complicated, ill-organized, and irresponsible 
municipal corporations, which in latter days have grown to 
such portentous size, little of danger would have followed.* 

* In his treatment of this important topic, the author is mainly 
indebted to Mr. Manley Howe, of Boston, who, in a newspaper 
article published some years ago, seems to have been the first 



LIMITATION ON TAXATION. 243 

It should, however, be here noted that remedial action 
in this matter has recently been taken by some of the 
States, by forbidding their counties, cities, towns, or vil- 
lages from incurring an indebtedness in excess of a per- 
centage, varying with their population, of the valuation of 
the real estate subject to taxation. Constitutional restric- 
tions on the borrowing power of the State itself, and of 
the municipalities within its territorial jurisdiction, have 
also in some of the States been adopted. 

From the above discussion the following conclusions 
would seem to be fully warranted : 

The limitation on the exercise of the power of taxation 
under a free government necessarily grows out of the source 
and sole justification of the power — namely, its necessity; 
and the righteousness of any specific interference by the 
state with individual rights in respect to property (as well 
as in respect to personal liberty) may be tested by the 
question, Is it necessary ? Not, Is it convenient ? Not, Is 
it suitable? If the necessity exists, then the power may 
be justifiably exercised to a corresponding extent. But, 
on the other hand, if the interference transcends that which 
is absolutely essential for fulfilling the rightful purposes 
for which the state exists, then it loses its sole justification 
of necessity and becomes tyranny, the definition of which 
is " despotic use of power." Further, " if the state, even 
to promote its necessary and legitimate objects, takes the 
amount of property to which it is entitled in such a man- 
ner as requires a citizen to pay more than his just share 
of the requisite amount — whether it be great or small — 
it takes that to which it has no right ; it does what, if done 
by a citizen in defiance of law, is called robbery; if under 
colour of law, is called fraud; but which in a government 
which makes law is simply confiscation and tyranny." And 
yet, very strangely, this tyranny has come to be regarded 
and defended by not a few intelligent persons who claim 
to understand the theory and nature of a free and just 
government as an act of wisdom and statesmanship, and in 
the highest degree beneficent to the citizen whose property 
is confiscated. 



person to intelligently present the facts in the case and their con- 
sequences to the general public. 



244 THE THEORY AND PRACTICE OF TAXATION. 

It will be interesting to print the provisions for " Pub- 
lick Charges " contained in the " Book of the General Lawes 
and Libertyes concerning the Inhabitants of Massachusets, 
1660/' one of the earliest compilations of the laws of an 
American colony: 

" 2. The Court considering the necessity of an equal 
contribution to all common charges in Townes, Doth Order, 
That every Inhabitant, shall contribute to all charges, both 
in Church and Commonwealth whereof he doth or may 
receive benefit: And every such Inhabitant, who shall not 
contribute, proportionably to his ability, to all common 
charges, both Civil and Ecclesiastical, -shall be compelled 
thereunto, by Assessment and distress, to be levyed by the 
Constable, or other Officer of the Town, and the lands and 
estates of all men (wherein they dwell) shall be Eated for 
all Town charges, both civil and Ecclesiastical (as afore- 
said) where the lands and estates shall lye: and their per- 
sons where they dwel. 

" 3. For a more Equal and ready way of raising means 
for defraying the publich charges, and for preventing such 
inconveniences, as have fallen out upon former assessments, 
It is Ordered and enacted by the Authority of this Court. 
That the Treasurer for the time being, shall from yeare to 
yeare in the fift month, without expecting any other order, 
send his warrants to the Constable, and Selectmen of every 
Town within this Jurisdiction, requiring the Constable to 
call together the Inhabitants of the Towne, who being so 
assembled, shall chose some one of their freemen, to be a 
Commissioner for the Towne, who together with the Select- 
men, for their prudential affairs, shall some time in the 
sixt month, then next ensuing, make a List of all the male 
persons in the same Towne, from sixteen yeares old and 
upwards, and a true estimation of all personal and real 
estates, being or reported to be the estate of all and every 
the persons in the same Town, or otherwise under their 
custody or managing according to just valuation, and to 
what persons the same doe belong, whether in their owne 
Town or elsewhere, so neer as they can by all lawfull 
means, which they may use, viz., of houses, lands of all sorts 
as wel broken up as other (except such as doth or shall 
lye common for free feed of cattle, to the use of the in- 
habitants in general, whether belonging to Townes or par- 



TAXATION IN EARLY MASSACHUSETTS. 245 

ticular persons, but not to be kept or hearded upon it, to 
the damage of the proprietours,) mils, ships and all small 
vessells, merchantable goods, cranes, wharfs, and all sorts 
of cattle; and all other known estate whatsoever, either 
at sea or on shore, all which persons and estates are by 
the said Commissioners and Selectmen to be assessed, and 
rated as here followeth; viz. every person aforesayd (except 
Magistrates and Elders of Churches) one shilling and eight 
pece by the head, and all estates, both real and personal, 
at one penny for every twenty shillings, according to the 
rates of cattle, hereafter mentioned. The estates of all 
marchants, shopkeepers and factors, shall be assessed by 
the Eule of common estimation, according to the will and 
doom of the assessours, having regard to their stock and 
estate, be it preferred to view or not, in whose hands soever 
it be, and if any such merchants find themselves over valued, 
if they can make it appear to the Assessours, they are to 
be eased by them, if not by the next County Court; And 
houses and land of all sorts (except as aforesayd) shall be 
rated at an equal and indifferent value, according to their 
worth in the Towns and places, where they ly. Also every 
Bull and Cow of four years old and upward at three pounds, 
Heifers and steers between three and four years old at fifty 
shillings, and between two and three years old at forty 
shilling, and between one and two, at twenty shillings, and 
every ox of four years old and upward at five pound, every 
horse and mare of three years old and upwards ten pounds, 
between two and three at seven pounds, of one year old and 
upwards, at five, pounds, every ewe sheep above one year 
old, at five and twenty shillings, every goat above a year 
old, at eight shillings, every weather sheep above one year 
old, at ten shillings, every swine above one year old, at 
twenty shillings, Every Asse above one year old, at forty 
shillings. And all cattle of all sorts, under a year old, 
are hereby exempted, as also all hay and corn in the hus- 
bandmans hand because all meadow, arable ground, and 
cattle are rateable as aforesaid. And for all such persons 
as by the advantage of their arts and trades, are more en- 
abled to help bear the publick charge, then common labour- 
ers and workmen, as Butchers, Bakers, Brewers, victuallers, 
Smiths, Carpenters, Taylers, Shoemakers, joyners, Barbers, 
Millers and Masons, with all other manual Persons and 



246 THE THEORY AND PRACTICE OF TAXATION. 

Artists, such are to be rated for returnes and games, pro- 
portionable unto other men, for the produce of their estates. 
Provided that in the rate by the poll, such persons as are 
disabled by sickness, lameness or other infirmitie, shall be 
exempted. And for such servants and children as take not 
wages, their parents and masters shall pay for them, but 
such as take wages shall pay for themselves. And it is 
farther Ordered, that the Commissioners for the several 
Towns in every shire, shall yearly upon the first fourth of 
the week, in the seventh month, assemble in at their shire 
Town : and bring with them f airely written the just number 
of males, listed as aforesaid, and the assessments of estates 
made in their several Towns, according to the rules and di- 
rections in this present Order expressed, and the said Com- 
missioners being so assembled, shall duely and carefully ex- 
amine all the said lists and assessments of the several Towns 
in that shire, and shall correct and perfect the same, accord- 
ing to the true intent of this Order, as they or the major 
part of them shall determine, and the same so perfected, 
they shall speedily transmit to the Treasurer under their 
hands, or the hands of the major part of them ; and there- 
upon the Treasurer shall give warrants to the Constables 
to collect and leavy the same; so as the whole assessment, 
both for persons and estates, may be payd in, unto the 
Treasurer, before the twentieth day of the ninth month 
yearly; and every one shall pay their rate to the Con- 
stable, in the same Town where it shall be assessed, (nor 
shall any land or estate be rated in any other Town; but 
where the same shall lye, or was imployed to the owners, 
reputed owners, or other proprietors use or behoof, if it be 
within this jurisdiction) and if the Treasurer cannot dis- 
pose of it there, the Constable shall send it to such place in 
Boston, or elsewhere, as the Treasurer shall appoint at the 
charge of the Country, to be allowed the Constable, upon 
his account with the Treasurer, and for all peculiars, viz. : 
Such places as are not yet layd within the bounds of any 
Town, the same lands, with the persons and estates there- 
upon, shall be assessed by the rates of the Town next unto 
it, the measure or estimation shall be by the distance of the 
meeting houses." 

It was also ordered that no estate of land in England 
should be rated in any public assessment. 



CHAPTER XI. 

LIMITATION ON" THE INSTRUMENTALITIES OF TAXATION. 

Attention is next asked to the instrumentality by 
which taxation subserves the necessities of the state and 
enables it to effect the purposes for which it was instituted. 
The designation of this instrumentality is " revenue/' as 
is indicated in the phrase "tariff (or taxation) for reve- 
nue." But the term " revenue " is abstract and most in- 
definite, and as popularly used conveys little meaning 
other than a receipt of something of value. In rude or 
incipient forms of government, where tribute or taxes were 
pa}^able in cattle, skins, cocoanuts, salt, grain, and the 
like, the term might be fairly interpreted as an income 
of property in general. But in a highly civilized state such 
a meaning is inadmissible. The government of such a state 
obviously could not defray its varied expenses by payments 
with various articles of property, even though their value 
may be unquestioned — as, for example, its executive with 
fish, fresh or salt ; its legislators with distilled or fermented 
liquors; its judges with boots and shoes; its soldiers and 
sailors with cotton or corn ; and its clerks with agricultural 
implements — even though the producers of all these forms 
of wealth or property may be most willing to give them 
in discharge of their tax obligations.* In such a state 
revenue has and can have, therefore, but one meaning — 

* In ancient times cattle were regarded among nations of a 
considerable degree of civilization as standards of value, and obliga- 
tions to government in the nature of taxes were payable therein. 
As recent, moreover, as 1758 taxes in Virginia and Maryland were 
payable in tobacco; and in Massachusetts, Indian corn, musket 
balls, dried peas, cattle, and beaver skins were made legal tender 
for the payment of taxes until the early years of the eighteenth 
century. Ultimately, and in all cases as civilization advanced, such 
media for the payment of taxes, or the discharge of other forms 
of indebtedness, have been found to result in terrible currency 
confusion and to be. wholly impracticable. 

247 



248 THE THEORY AND PRACTICE OF TAXATION. 

namely, money; because money is the indispensable and 
practically the only means of defraying the expenses of 
the state and efficiently administering its government ; and 
taxation is the process by which the state obtains money 
from its citizens, who in turn obtain it (as before pointed 
out — see Chapter IX) in exchange for some product 
of their labour or for some direct personal service. In 
short, money is an expedient that finds its sole justifica- 
tion in its adaptation to a special purpose. 

At the same time it is important to bear in mind that 
the raising or procurement of money with the view or pur- 
pose of accumulating wealth is not a legitimate function 
or object of civil government. 

This point, which, stated and regarded as an abstract 
proposition, may seem to the reader as a matter of interest 
but of little practical importance, finds a very interesting 
and most instructive exemplification in the recent attempt 
to govern South Africa by means of a chartered company 
— " The South African Company." The attempt failed 
by the confusing on the part of the company of two things 
which are absolutely irreconcilable and ought never to be 
associated — namely, the prerogative of governing men on 
the one hand and the desire of making money on the other. 
This the company in question attempted to do by taxing 
the inhabitants of the territory embraced in its charter for 
the purpose of making dividends for shareholders, who as 
a rule did not live in the country, but mainly in England. 
The result has been a thoroughly vicious and intolerable 
form of government, one which "has operated to deaden 
the sense of responsibility among the rulers, who are here 
to-day but are gone to-morrow, and answerable to nobody 
but the company." 

Now, if these premises are correct — and it is difficult 
to see how they can be disproved — it would seem to follow 
that to seek to make taxation, which is a fit contrivance 
only for raising revenue, an instrument for effecting some 
ulterior purpose, be it never so just and legitimate, to seek 
to use it for the attainment of any other advantage than 
the obvious one of raising money, is to lose sight of a 
fundamental principle of every free government and to 
forbid all expectation of recognising any other basis for 
the exercise of this great sovereign power of the state than 

V 



TAXATION FOR REVENUE. 249 

expediency, which in turn will depend upon the actions, \^v 
passions, and prejudices of legislators, who may not be the 
same in any two successive legislative assemblies. 

Such a perversion of principle, furthermore, reaches its 
climax of absurdity in practice when its immediate bene- 
ficiaries claim to be the only proper persons by whom the 
incidence and amount of taxation can be intelligently de- 
termined — a claim that is practically equivalent to the 
assumption that privilege should take precedence of rights 
in the theory of government.* And yet there have been 
but very few of the revenue enactments in recent years of 
the Federal Government of the United States that have 
not only indorsed the rightfulness and desirability of such 
claims, but have made them the basis of most important 
legislation. 

As this subject has hitherto received but little attention 
from legislators and the legal profession in the United 
States, the following citations from recognised American 
authorities are most pertinent in this connection : \ 

" A burden laid not for the purpose of producing reve- \ 
nue, but in order to accomplish some ulterior object which \ 
the General Government lacks the power otherwise to ac- j 
complish, comes under no definition of the word " tax " j 
which is recognised in public law. It demands no con- j 
tributions for the service of the state; it adds and is ex- 
pected to add nothing to the public revenue. It annihi- I 
lates that upon which it is levied, and it differs from 
confiscation only in this : that confiscation seizes something 
of value and appropriates it to the needs of the Govern- 
ment, thus making it useful, while this seizes it for the J 
purpose of destruction/' — Cooley, Law of Taxation, p. 75. j 

* In popular discussions of tariff revisions in the United States 
such a claim has actually been advanced by the representatives 
of interests in whose behalf certain imposts had been specially 
enacted, and which were not for purposes of collecting but rather 
for the prevention of revenue. 

" It is not claimed that this statute [McKinley Tariff Act] , 
any more than any other human ordinance, was perfect in its de- 
tails, nor that all its rates of assessment of duties should have 
been maintained, but the modifications suggested by time and ex- 
perience should have been left to the friends of the measure." — 
Letter of the Eon. L. P. Morton, accepting nomination for the 
office of Governor of New York, October 9, 1894. 
17 



250 THE THEORY AND PRACTICE OF TAXATION. 

" One grievous invasion of property — and of course 
ultimately of labour, from whose accumulations all prop- 
erty grows — is by Government itself, in the shape of taxa- 
tion for objects not necessary for the common defence and 
general welfare. Men have a right not only to be well 
governed, but to be cheaply governed — as cheaply as is 
consistent with the due maintenance of that security for 
which society was formed and government instituted. 
This, the sole legitimate end and object of law, is never to 
be lost sight of — security to men in the free enjoyment 
and development of their capacities for happiness — se- 
curity : nothing less, but nothing more." — Sharswood, 
Legal Ethics. 

" To the extent that the mass of our citizens are in- 
ordinately burdened beyond any useful public purpose 
and for the benefit of a favoured few, the Government, 
under pretext of an exercise of its taxing power, enters 
gratuitously into partnership with these favourites, to 
their advantage and to the misery of a vast majority of 
our people/' — Message of Grover Cleveland, President of 
the United States, December, 1888. 

Taxation for Revenue only. What does it mean ? 
— It is essential to the completeness of this discussion to 
call attention at this point to the circumstance that a full 
recognition and rigid adherence in practice by a Govern- 
ment to the principles of taxation above shown to be funda- 
mental, will not interfere with or impair the efficiency of 
its administration. The raising of revenue (money) by 
taxation is one thing; the determination of how the reve- 
nue collected shall be used or expended is quite another 
thing; and the danger line to the liberties of the people is 
crossed when these two functions are confounded. The 
exercise of the first, as already pointed out, is subject to 
limitations growing out of the conditions essential to the 
existence of a free Government. The determination of 
the second rests primarily in the legislative department of 
such Government, and is subject to no legal limitations 
in the United States other than what flows from the oft- 
repeated dicta and decisions of its highest judicial authori- 
ties, that money taken out of the pockets of the people 
by taxation can not be used (expended) for any other than 
a public purpose; but what constitutes a public purpose 



REVENUE AND EXPENDITURE. 251 

is so indefinite that one eminent jurist, especially versed 
in the subject, has declared that " there is no such thing 
as drawing a clear line of distinction between purposes 
of a public and those of a private nature." * 

If a state, therefore, in the plenitude of the wisdom of 
its legislators, desires to interfere with the operation of the 
laws of trade, domestic or foreign, control the preferences 
of its citizens in respect to production or consumption, re- 
press one form of industry and stimulate another, and dis- 
courage even to prohibition the indulgence of such tastes 
and passions as it may judge to be detrimental to itself 
or the individual, it may legitimately exercise functions 
entirely different from that exercised in raising revenue 
and governed by entirely different principles. The right 
to regulate trade and commerce and the power of police 
are entirely independent of the right to raise revenue. 

If the state, in providing itself with what it regards 
as necessary revenue, levies its taxes in such a manner that 
no citizen is required to pay more or allowed to pay less 
than his just proportion, then there is no tyranny in taxa- 
tion, even if the methods employed, without any such in- 
tent, may incidentally promote private interests and sump- 
tuary purposes. But if, on the other hand, a just and 
equitable method of taxation will not promote these pur- 
poses, and, as is usually the case, the state resorts to meth- 
ods that are not just, not equitable, and imposes upon some 
citizens an undue share of the general public, burden, then 
to that extent taxation becomes tyrannical, and can not 
be justified except upon the assumption that there is no 
limitation on the right of a state to interfere with individ- 
ual rights to property; which is the same thing as assert- 
ing that the state in question is not " free," but is a " des- 
potism." In short, the proposition would seem to be clear 
that the state can not, without violating that simple prin- 
ciple of justice which prescribes equality in taxation, use 
its taxing power for effecting any other purpose whatever 
except to raise money, f 



* Cooley, Law of Taxation, p. 70. 

t A legal writer of eminence (Justice Cooley) has recently con- 
tended that this is not a correct view, for the reason that it is 
one which finds no " countenance in the practice of our Govern- 



252 THE THEORY AND PRACTICE OF TAXATION. 

The principle here involved may be further illustrated 
by reference to a carious chapter of railroad experience. 
Some years ago the managers of one of the great railroads 
of the United States appropriated a part of its receipts 
from the carriage of freight and passengers to the support 
of an opera house and a corps of ballet dancers. Extraor- 
dinary as was this procedure, there was no question that the 
directors, who were trustees for the stockholders, had the 
right to determine how the earnings of the road should 
be applied, so long as the stockholders failed to restrain 
them or prevent their continuance in office; and as they 
did not, no legal action or restraint of their singular use 
of the receipts of the property was attempted. But if 
these same directors had decided not to take money directly 
from the aggregate earnings of the railroad for the fur- 
therance of their peculiar views, but that in addition to 
certain rates for transportation all passengers and freight 
should pay a special sum (tax) for the support of the 
opera house, the state would have undoubtedly and prop- 
erly intervened and forbidden its collection, on the ground 
that the railroad was not chartered (called into existence) 
for any such purpose, and that the attempt to use any 
power other than what was granted or contemplated in its 
charter was illegal and unwarranted. 

Again, if the legislative department of the state decides 
that it would be expedient to establish or stimulate the 
manufacture of certain commodities, no one under a free 
government would venture openly to justify such action, 
except on the ground that public welfare would be thereby 
promoted, although practically such justification in the 
United States has long since ceased to be other than a 
pretence and a cover for the promotion of private interests. 
Suppose, for example, that the manufacture of the com- 
modity which it is proposed to stimulate is tin plate, and 
it is decided that the desired result can be best attained by 
giving the domestic manufacturer the difference between 
what his product will sell for in a free market and what 

ment, or indeed that of any other." But if this contention is 
valid, then it may be pleaded with equal effect for the justifica- 
tion and continuance of every practice which old-time views and 
long usage have tolerated, but which a higher civilization or a 
broader culture demands shall be abrogated. 



INDUSTRY AND STATE AID. 253 

he can make it for — say fifteen million dollars per annum — 
it would seem to be only simple justice that the state should 
fairly and honestly pay the sum representing this differ- 
ence, and raise the money,* not by a tax on the consumers 
of the product artificially maintained, who are no more 
interested in the matter than all other citizens, but by a 
levy upon the community at large, in the same equitable 
manner as it raises money to defray its other expenses. In 
short, if any industry can not live without state aid, and it 
is for the public welfare that it should live, let the state 
directly subsidize it, and not maintain it by allowing pri- 
vate interest arbitrarily to exercise the great sovereign 
power of taxation.f 

* A written public statement made by a Senator of the United 
States (George F. Hoar) in 1892, that an assertion by the Na- 
tional Democratic party of the United States in its presidential 
platform of that year, that " the Federal Government has no con- 
stitutional power to enforce and collect tariff duties except for 
the purpose of revenue only," was equivalent to an unveiling of 
an opinion that " the American people alone, of all civilized na- 
tions, have no power to do anything for the encouragement of 
their own industries," displayed an amount of ignorance and mis- 
conception of the powers and objects of the Government he served 
which, to say the least, was discreditable to its author. 

t " Granting that it is expedient for the Government to spend 
money in the maintenance or the promotion of the iron manu- 
facture, for example, it must be expedient also that the public 
should know the exact amount which it costs annually, just as 
it is expedient that the public should know exactly how much 
the army and navy costs, or how much the annual improvement 
of rivers and harbours costs. No view, however broad, of the 
province of government can furnish an excuse for concealing the 
expense of any great national undertaking. . . . But there is no 
trace of this expenditure in the national accounts. . . . Next, it 
must be said that any fund of large amount, raised and distributed 
in this way, must of necessity prove a corruption fund. By this 
I do not mean a fund distributed in bribes to individuals or organ- 
izations, but a fund the existence of which must be constantly 
present to the mind of the lazy, the improvident, or incompetent, 
as something to fall back on if the worst come to the worst. 
Suppose the national appropriations for the purpose of protecting 
manufacturing industry were made in the ordinary way by a dis- 
tinct vote of Congress; were made, for instance, as the appropria- 
tions for the promotion of the carrying trade — the steamship sub- 
sidies, as they are called — are made in the shape of an annual 
maximum sum. Suppose this sum were paid over to the corpora- 
tions or individuals engaged in each manufacture on their giving 
proof that they were carrying on a bona-fide business. Suppose 



254 THE THEORY AND PRACTICE OF TAXATION. 

This was the idea of Alexander Hamilton, who in the 
early days of the republic favoured state interference with 
the pursuits of the people to a large extent, as the best 
method by which domestic manufacturing should be stimu- 
lated by the state. This idea, however, found no more 
favour with the parties specially interested at that time 
than it would at present; inasmuch as a brief practical 
experience would so soon demonstrate the smallness of the 
revenue necessary to be raised by honest taxation for the 
direct maintenance of an industry by the state, in com- 
parison with the amount raised, for the most part by in- 
equitable and unjust taxation, for the support of that form 
of interference by the state with production which goes 
under the name of " protection," as to make any long 
toleration of the latter policy by a free people exceedingly 
unlikely. 

Generic Difference between the " Taxing " and 
" Police " Powers of the State. — Attention is next 
asked to the generic difference between the " taxing " and 
"police" powers of the state (to which a brief reference 
has been made already), and to the incongruities and gov- 
ernmental abuses that inevitably result from a lack of full 
recognition of this fact. The object of the taxing power 
is to raise money to defray the expenditures of the state, 
and proof and argument seem conclusive that it can not 
be legitimately used for anything else. By the power of 
police is understood the internal regulation of the affairs 
of the state in the interest of good order. The idea, there- 
fore, of resorting to taxation for the purpose of protecting 
individuals against their own foolishness, enforcing moral- 
ity, preventing social evils, or as an instrumentality for 
the punishment of crime, is to pervert an agency from 
the one sole purpose for which it can rightfully exist to 
another less fit and not warranted by necessity, and pre- 
supposes an entire misconception of the principles of a 

that to each were given as much as would meet the loss, as shown 
by his books, incurred by him in competing with foreigners in the 
home markets. . . . The political objections to the protective sys- 
tem can not be made so clear as by inquiring how the plan of dis- 
tributing the money directly by the public Treasury would work." 
— E. L. Godkin, Problems of Modern Democracy, in Some Political 
Aspects of the Tariff, p. 98. 



TAXING AND POLICE POWERS. 255 

free government ; and all perversions of this power are cer- 
tain to entail evils greater than the abuses which it is de- 
vised to remedy. If the prosecution of any trade or occu- 
pation, or the manufacture and use of any product, consti- 
tutes an evil of sufficient magnitude to call for adverse 
legislation, let the state proceed against it directly, coura- 
geously, and with determination. To impose taxes upon 
an evil in any degree short of its prohibition is in effect to 
recognise and license this evil. To demand a portion of 
the gains of a person practising fraud, may be an effectual 
method for putting an end to his knavery by making 
his practices unprofitable; but it would be, all the same, 
a very poor way for a state to adopt as a means for sup- 
pressing fraud. If absolute prohibition is the object, then 
such result should be attained through the police force of 
the state, and through its legislative enactments making 
the act, powers, or products which it is desired to suppress, 
misdemeanours or felonies. The manufacture and sale of 
spirituous liquors, in common with all other branches of 
business, is a legitimate subject for taxation, but there is 
a broad distinction — indeed, nothing in common — between 
taxing this business for revenue and in levying taxes with 
a view of preventing the business from being transacted 
at all, and so preventing revenue. 

Again, if the above analysis of the origin, justification, 
and limitations of the power of taxation is correct, it would 
seem evident that to seek to make the occasion for the 
exercise of the power other than necessity, and the object 
anything else than the raising of money for meeting the 
expenditures of a government economically administered, 
is to strike a blow at not only good government, but also 
at free government. It is also a flat denial of the authori- 
tative statement of the United States Supreme Court that 
" there are rights in every free government beyond the con- 
trol of the state," and that the theory of our Government, 
State and national, admits of no place for the deposit of 
unlimited power. For the deliberate recognition and in- 
dorsement of the right on the part of the state to dis- 
regard these limitations in a single instance, is equiva- 
lent to a denial that there are any such, and certainly 
in this one department makes the Government despotic 
rather than free. Once recognise the principle of in- 



256 THE THEORY AND PRACTICE OF TAXATION. 

equitable taxation, and no one can foresee how far it may 
be carried. 

If it is contended, as it is, that the use of the power 
of taxation for purposes other than the collection of reve- 
nue finds justification in the fact that " the law-maker 
must look far enough beyond the general purpose to 
satisfy himself how any proposed levy is likely to affect 
the general good," a sufficient answer to such contention 
would seem to be that the general good is always best 
subserved by doing what is exactly right, and not what is 
expedient. 

There is no question that the Federal Government of 
the United States, under its peculiar organization, is ex- 
cluded from all responsibility for the internal order or 
morality of the States that make up the Union, and under 
such circumstances it follows that where Congress assumes 
that the consumption or use of certain commodities is 
prejudicial to the interests of the people (as it has done, 
as will hereafter be shown), and attempts, when providing 
means for the support of the Federal administration, to 
embody such assumptions, with a view of prohibitions or 
restraints, in measures of revenue, it is also enacting 
sumptuary laws * and imposing taxes, not in accordance 
with any rule of equity, but by reason of some arbitrary 
and sentimental notions of how a citizen ought to live, 
dress, eat, and drink. In the case of the several States of 
the Union, whose power of taxation is practically unlim- 
ited, such action is in the nature of oppression ; but in the 
case of the Federal Government, whose powers of taxation 
are carefully limited by its Constitution, it is clearly an 
act of usurpation. In further elucidation of this matter, 
it is interesting to note, that probably no example can be 
found in history in which an attempt has been made to 
continue the raising of revenue with the regulation of 
popular consumption, that has not resulted in failure as 
respects the attainment of both objects. 

One of the most notable perversions of the correct prin- 

*" Sumptuary: Relating to expense. Laws or regulations 
which restrain or limit the expenses of citizens in apparel, food, 
furniture, etc. Sumptuary laws are abridgments of liberty and 
of very difficult execution. They can be justified only on the 
ground of extreme necessity." — Webster's Dictionary. 



SUMPTUARY LAWS. 257 

ciples of taxation for the purpose of affecting the popular 
consumption of a commodity, has been the comparatively 
recent attempt of the Federal Congress (act of August, 
1886) to prevent the use of one of the great discoveries 
of the age — namely, the manufacture of artificial butter, 
which, when properly prepared, is a most valuable and per- 
fectly healthy addition to the food resources of the people. 
The practical results of this attempt are exceedingly cu- 
rious and ought to be in the highest degree instructive. 
The burden of the tax — two cents per pound, and special 
taxes on manufacturers, wholesale and retail dealers — 
which was intended to be prohibitory, has not been suffi- 
cient to accomplish the object of its levy; for the annual 
production, sale, and consumption of oleomargarine in the 
United States have continually increased (from 34,325,000 
pounds in 1888 to 48,364,000 in 1892, and 69,632,000 in 
1894). The Federal courts having decided that it is mer- 
chantable, the States may to a certain extent also regulate 
its sale, but can not prevent its importation. The Federal 
Government furthermore derives a considerable revenue 
from its domestic manufacture and sale ($1,409,211 in 
1895), and an annual large and increasing quantity for 
the consumption and use of foreign countries is exported 
(127,193,000 pounds in 1894); and clearly, if such pro- 
duction and sale are fraudulent and wrong, the Govern- 
ment has become a partner in such fraud and wrong and 
in effect licenses them. 

It is also an interesting fact that this idea of resorting 
to taxation for the primary purpose of enforcing morality 
and preventing social wrong is a comparatively modern 
idea, and finds its chief exemplification in the United 
States. 

The lesson of all history is to the effect that, save in 
the case of war or invasion, nations have rarely or never lost 
a freedom once possessed, except through the tolerance 
(born of indifference) of a succession of gradual and in- 
sidious perversions and weakening of those fundamental 
principles which must be maintained unimpaired to make 
popular liberty possible. And it is alike startling and 
discouraging to note how rapidly, in recent years, the 
United States, as a political entity, has been travelling in 
this direction. 



258 THE THEORY AND PRACTICE OP TAXATION. 
Theory of the Power of Taxation originally 

ENTERTAINED BY THE AMERICAN PEOPLE. The idea of 

using the power of taxation for other purposes than that 
of obtaining revenue for defraying the necessary expendi- 
ture of the Government, was one hostile at the outset to all 
the beliefs and habits of thought of the American people; 
was totally incongruous with the social and political system 
which they instituted and expected, and was reluctantly 
admitted under the idea that the industries of a new 
country might need some temporary stimulus and assist- 
ance at the outset.* The party (old Whig) that in sub- 
sequent years specially advocated the policy of protection 
to domestic industries, always also admitted that the Fed- 
eral Government had no original right to exercise the power 
of taxation except for revenue, but it claimed that taxes 
on imports might and should be so adjusted as to afford 
protection for our infant industries. And in this they were 
joined by some members of the other great national party 
— the Democratic — who argued in favour of what was 
called " incidental " protection, or the protection which 
inevitably results in a greater or less degree from the im- 
position of duties without any such premeditated purpose. 

Theory and Practice of Later Days. — But it was 
not until after the termination of the war in 1865 that 
anybody in the United States ventured to openly main- 
tain or defend the proposition that protection was other 
than the incidental and not the main object of the exer- 
cise of the taxing power, although this perversion of prin- 
ciple was tacitly recognised by the imposition and con- 
tinuance of taxes which had for. their intent, or resulted 
in, a prevention of the raising of revenue. 

Illustrative Examples of the Practical Perver- 
sion of the Theory and Principles of Taxation. — 
One of the most instructive examples of this kind was 
afforded by the imposition of a tax in 1869 of five cents a 
pound on the importation of crude or unmanufactured 
copper; which proved so prohibitive that in one year 
(1878) revenue to the extent of only five cents, accruing 

* The doctrine of Hamilton was that while the payment of 
bounties for the encouragement of new industrial undertakings 
was justifiable, their " continuance on manufactures long estab- 
lished was most questionable." — Report on Manufactures, 1791. 



DUTIES FOB PROTECTION. 259 

from the importation of only one pound of copper, was 
collected. The legislators who enacted the law productive 
of such a result might have pleaded in justification that 
revenue was their intent ; * but when a brief experience 
had proved that the taxing power had been used to pre- 
vent the raising of revenue by the state, and for a differ- 
ent purpose, it was evident that a continuance of the 
policy (and the tax was long retained) was in effect a 
justification and an indorsement of it. To complete the 
illustration, it should be further pointed out that the re- 
sult of this perversion of the taxing power was to enable 
the owners of copper mines in the United States, especially 
certain ones of unprecedented richness — formerly the prop- 
erty of the United States, but sold for a mere song — to 
extort for a period of years from the people of the whole 
country the sum of five cents for every pound of copper 
they consumed, but from which exaction (aggregating mil- 
lions) the people of other countries, who consumed the 
large surplus product of American copper exported, were 
exempt, as the tax laws of all countries have no extra-ter- 
ritorial jurisdiction. During the discussion and defence 
of this tariff enacted in 1890, however, all pretence and 
evasion were discarded, and the position openly taken that 
the Government could rightfully levy taxes, not for the 
purpose of raising revenue, and not to subserve any neces- 
sity of the state, and under the name of protection delegate 
to private or corporate interests the right to collect and 
appropriate them. 

It has been contended by authorities worthy of all re- 
spect (the late George Ticknor Curtis, for example) that 
there is no perversion of the taxing power in the levy of 
duties on imports by the Federal Government for pur- 
poses other than revenue,, for the reason that " duties are 
not taxes, but assessments, in the nature of tribute imposed 
on merchandise imported from other countries," and 
that " when the Government levies duties on foreign prod- 
ucts," under the provision of the Constitution that " Con- 
gress shall have power to lay and collect taxes, duties, im- 

* The United States Supreme Court has held that the judicial 
power can not inquire into the intentions of Congress in imposing 
a tax; and that, if injustice is done, the only remedy is an appeal 
to the legislative power that has inflicted it. 



260 THE THEORY AND PRACTICE OF TAXATION. 

posts, and excises," " it does not exercise or pretend to 
exercise its taxing power." * 

In answer to this it is to be said, first, that the appli- 
cation of different names to one and the same act does 
not alter the nature of the act. Second, that usage and au- 
thorities among all nations and at all times are in unison 
in regarding such terms as imposts, duties, excises, cus- 
toms, tolls, gabelle, talliage, tribute, and the like, when 
used in respect to the fiscal functions of a government, 
as expressive simply of different methods of effecting one 
and the same object — namely, the compelling of contribu- 
tions from persons, property, or business for the use or sup- 
port of the state. The contention, then, thus far is simply 
a quibble as to the meaning of words. Third, the authority 
given to Congress by the Constitution " to lay and collect 
' imposts,' in connection with taxes, duties, and excises," 
does not warrant the assumption that any of these acts 
of levying and collection are to be by methods that are not 
primarily for the purpose of raising revenue (money) for 
the service of the state, or are antagonistic to the struc- 
ture of a free government. Following the precedents be- 
fore noted, a measure known as the Anti-option Bill was 
introduced and found favour in Congress, which was noth- 
ing more nor less than an attempt to make people dealing 
in certain staple agricultural commodities honest by the 
exercise of the taxing power; a measure devised for effect- 
ing indirectly that which it would be unconstitutional to 
do directly — namely, to prevent trading in cotton, grain, 

* Mr. Curtis does not repeat this statement in his Constitu- 
tional History of the United States. In the second volume he 
had contemplated a note on a "tariff for revenue only," but his 
intention was laid aside, and the following appears: 

" This question being in the domain of party politics rather 
than in that of constitutional history, the note suggested at p. 190 
is omitted. Whether protection to manufacturers should be the 
direct object of a tariff, or whether it should be incident thereto, 
appear to be matters of mere verbal dispute. Every tariff is for 
revenue: and every tariff is intended to be so laid as to protect 
rather than to injure. If a tariff were laid for protection only, 
it would find no constitutional warrant. Whether or not a given 
tariff discriminates unfairly in favour of one class at the expense 
of the others is a question for the law-making power to decide; 
and self-interest and party spirit will largely determine the con- 
duct of legislators upon that question" (p. 691). 



ANTI-OPTION LEGISLATION. 261 

hops, meats, etc., for future delivery, by first assuming 
that all such sales are " immoral, unnatural, unjust, and 
injurious," and then attempting to put an end to them, 
not by the exercise of the police power of the several States, 
but by licensing and taxing them by the Federal Govern- 
ment under pretence of collecting revenue, when by the 
very terms of the bill no taxes productive of revenue are 
likely to accrue from its provisions. It is difficult to see 
why, if this extraordinary measure had become law and 
obligatory on all citizens, the policy of restraint involved 
should not have been made also applicable to the buying 
and selling of all articles other than cotton and cereals — 
as cloth, stoves, boots and shoes, securities — and even per- 
sonal service ; and why, if it is right to extinguish one trade 
or calling by taxing it, every other may not be uprooted 
and extinguished in the same way.* 

* As pertinent and most instructive on this subject, attention 
is asked to the following extract from a speech of Hon. Edward 
D. White (then a Senator of the United States from Louisiana, 
and now a judge of the United States Supreme Court), in the 
course of a debate in the Senate in July, 1892, on the so-called 
Anti-option Bill : " No power as to imposts was reserved in the 
States by the Federal Constitution. All the lawful powers of 
government which could be exercised in that particular passed 
into the life and being of the Federal Government by the lodgment 
in that Government of the power to levy imposts. In my judg- 
ment, if complaint is made of import taxes by the Federal Gov- 
ernment, levied not for the purpose of revenue, but for protection 
or prohibition, the complaint is not that the Federal Government 
violates the Constitution or the limitations of the Constitution, 
because as to that all authority is granted by the Constitution. 
When I say this I mean no limitation by the Constitution by ex- 
press provision of the Constitution. The complaint of undue or 
prohibitory external imposts is not that the Constitution has been 
violated. 

" No, but that there has been a violation of the great funda- 
mental and elementary principle of all government, which under 
lies all constitutions, which affect this Government and every 
other government, and which would affect the most unlimited 
government in the Avorld. These principles are, that government 
is created with limitations flowing from the nature of its being, 
which teach that no government shall use its power for the benefit 
of the few to the detriment of the many. Therefore, all the argu- 
ments which have been made on the subject of the abuse of the 
impost power in the Federal Government are arguments address- 
ing themselves not to the limit of delegation under the Constitu- 
tion as to imposts, but to the want of power arising from the 



262 THE THEORY AND PRACTICE OF TAXATION. 

Another proposition which has received the indorsement 
of high judicial authority in the United States * is to em- 
ploy Federal taxation for the crushing out of State lot- 
teries, with the absurd accompaniment of no revenue 
(taxes) ; for if the desired object is attained, the payment 
of taxes and the procurement of revenue will be prevented. 
It seems clear, also, that if such a measure was once adopted 
it would constitute a precedent and authority for the de- 
struction by the Federal Government, through the exer- 
cise of the taxing power, of nearly every faculty or power 
now belonging to and exercised by the several States ; and 
that houses of prostitution, gambling and liquor saloons, 

very nature of government itself. The usurpation of power by 
Congress, not vested by the Constitution in Congress, is uncon- 
stitutional." 

In the course of the debate to which reference has been made, 
Mr. White, in response to a question as to what he would as a 
Senator consider his duty in respect to a bill proposed to Con- 
gress for enactment which, while undoubtedly productive of rev- 
enue, was intended for some other purpose, made answer as fol- 
lows : " I would have two questions to ask myself : Is this a bill 
raising revenue? That is the first question. If I determine that 
question in the affirmative, the lamp of my duty might lead my 
mind toward supporting that bill, but it could not carry me to 
that point unless another question were also answered: Is it an 
honest exercise of the taxing power, or is it a dishonest scheme 
to raise revenue and accomplish another purpose? If my mind, 
in the exercise of my duty here, found that either of these things 
existed, then, although it was a bill raising revenue, I would not 
vote for a dishonest bill raising revenue." 

The point here at issue was also clearly recognised by President 
Cleveland, in his message in 1886, announcing his signature to a 
bill (above noticed) for taxing oleomargarine, where the real intent 
of taxation was popularly assumed to be prohibitive of production 
and sale and not revenue. " It has been urged," he said, " as an 
objection to this measure that while purporting to be legislation 
for revenue, its real purpose is to destroy, by the use of the taxing 
power, one industry of our people for the protection and benefit 
of another. If entitled to indulge in such a suspicion as a basis 
of official action in this case, and if entirely satisfied that the 
consequences indicated would ensue, I should doubtless feel con- 
strained to interpose executive dissent." In other words, the 
President took the bill as it came to him as ostensibly a revenue 
measure, and in the exercise of his executive prerogative passed 
upon it as such, but at the same time he was careful to say in this 
message that if that bill had not presented that aspect to him, 
he would have been constrained to exercise the executive veto. 

* Judge Cooley, Atlantic Monthly, April, 1892. 



SUPPRESSION OF LOTTERIES. 263 

opium " joints," and other haunts of vice now under the 
control and supervision of the police powers of the States, 
might be regulated or suppressed by Federal taxation, as 
well as lotteries.* 

It should also be remembered that lotteries, if they 
exist at all in the United States, must do so under the 
authority of State laws; that Congress can not take from 
a lottery company the charter which a State Legislature 
haa granted; or make the issue of its tickets illegal, or 
punish as a crime the action of the managers by whom 
the business of a lottery is carried on; and further, that 
any legislation to make lotteries illegal should inferentially 
pertain to the State : first, because no jurisdiction has been 
given under the Constitution to Congress, except by remote 
inference, to interfere with this matter; and, second, be- 
cause there is no doubt that there was a complete unanimity 
of opinion among its framers that lotteries were legitimate 
and unobjectionable instrumentalities of society, inasmuch 
#s at the time the Constitution was framed they were au- 
thorized by the States and extensively employed through- 
out the country for the founding of schools and colleges, 
and the erection of churches, hospitals, and the construction 
of roads, bridges, and ferries. On the other hand, it does 
not admit of contention that under the exclusive power 
vested by the Constitution in the Federal Government to 
" establish post offices and post roads," the use of the mails 
for the transmission of lottery tickets and correspondence 
may be legitimately inhibited, or that the general business 
of lotteries may not be rightfully made subject to Federal 
taxation for the sole purpose of revenue. When the Pro- 
vincial Legislature of Canada recently decided to suppress 
lotteries in the Dominion, the measures which it instituted 
for so doing were not made contingent in any way upon 
the power of taxation, but by the imposition of heavy fines 
and penalties, not only on those engaged in the business, 
but also upon those having lottery tickets in their pos- 
session. 

During the early years of the late war, taxes were im- 



. * " Congress is not empowered to tax for those purposes which 
are in the exclusive province of the States." — United States Su- 
preme Court, Gibbons vs. Ogden, 9 Wheaton, i, 199. 



264 THE THEORY AND PRACTICE OF TAXATION. 

posed on the circulation of the State banks, " manifestly 
with a view to raise revenue and inform the authorities 
of the amount of paper money in circulation, and for no 
other purpose." But in 1865 these taxes were greatly in- 
creased, not for revenue, but with the admitted intent of 
destroying all banking institutions chartered by the States, 
leaving only similar institutions chartered by the Federal 
Government in existence. The result sought was fully 
attained, and the constitutionality of the legislation by 
which it was achieved was subsequently affirmed by the 
United States Supreme Court, which in the case of Veazie 
vs. Fenno (8 Wall., p. 552) nevertheless held that "the 
States possessed the power to grant charters to State 
banks," that " the power was incident to sovereignty, and 
that there was no limitation in the Federal Constitution " 
of such power. But in delivering the opinion of the court, 
the Chief Justice (Chase) declined to enter upon an in- 
quiry whether the tax imposed on the State banks was so 
excessive as to divulge the legislative intention to prohibit 
banking on their part, but he argued elaborately that for 
another and stronger reason the tax could be constitu- 
tionally imposed because it was a tax levied for a lawful 
purpose, which lawful purpose was to restrain a State 
from interfering with the Federal control of the currency 
and the right of the national Government to emit bills of 
credit, and it was upon that point that the decision of 
the Supreme Court was in fact rendered. 

The point of interest in this decision, however, is not 
the right of the Federal Government to regulate, especially 
under the original admitted necessity for the exercise of 
war powers, the currency of the country, but whether, 
having regard to the limitations on the exercise of the tax- 
ing power growing out of the nature of a constitutional 
government, the Federal authorities were justified in em- 
ploying it as an instrumentality not to collect revenue but 
to prevent revenue, and when the desired end could be 
effectually achieved by other and unobjectionable methods ; 
and on this point the court, following a well-established 
precedent of avoiding as far as possible all conflict between 
the judicial and legislative powers of the Federal Govern- 
ment, avoided any direct expression of opinion. As the case 
now stands, and as Congress has refused to discontinue 



MISUSE OF TAXATION. 265 

the tax, it must be regarded as equivalent to an assertion 
that the Federal Government has the constitutional right 
to exercise the taxing power not for revenue and not by 
reason of any necessity that can justify it.* 

During the recent discussion of the silver problem, an 
eminent American writer on economic questions recom- 
mended that a Federal tax should be imposed on silver, 
varying from month to month according to the changes 
in its market price as bullion, with the view of establishing 
and maintaining a parity of value between gold and silver, 
with, of course, a total disregard of the sole object and 
justification of taxation — namely, revenue. 

But the most curious illustration of the extent to which 
an entire misconception of the nature and functions of 
taxation has obtained favour in the United States is to be 
found in a pamphlet entitled Eational Principles of Taxa- 
tion,! recently published by a Professor of Political Econo- 

* Concerning the legitimacy and constitutionality of this pro- 
cedure, a minority of the Finance Committee of the United States 
Senate, in a report in May, 1892, on a proposition to repeal this 
tax, expressed themselves as follows: Prior acts imposing taxes 
of one or two per cent on the notes of State banks, imposed for 
revenue purposes, the committee regard as entirely justifiable; 
but in respect to the ten-per-cent tax, which neither produced nor 
was intended to produce revenue, the committee say: 

" This is flagrantly obnoxious in its manifest perversion of the 
taxing power conferred upon Congress by the Constitution. . . . 
We think also that a reasonable construction of the taxing-power 
clause in the Constitution, to wit, ' the Congress shall have the 
power to lay and collect taxes, duties, imposts, and excises to pay 
the debts and provide for the common defence and general welfare 
of the United States, would mean that Congress shall pay the pub- 
lic debt, provide for the common defence, and promote the general 
welfare with the money arising from such taxation, and not that 
Congress shall have the power to discharge these public duties by 
the mere framing of a statute without any revenue resulting there- 
from. Surely it would be an absurdity for the Constitution to 
say that Congress shall have the power to discharge the debt of 
the United States by the mere framing of a statute or the word- 
ing of a law. The payment of money or the transfer of things 
of value is the only way by which a debt can be paid. Therefore 
the enacting of a law in the name and under the pretence of rev- 
enue which is intended to raise no revenue in fact, but which has 
another and entirely different object, is a gross and fraudulent 
perversion of the taxing power conferred by the Constitution." 

t Rational Principles of Taxation. By Simon N". Patten, Pro- 
fessor of Political Economy, University of Pennsylvania, 1890. 
18 



266 THE THEORY AND PRACTICE OF TAXATION. 

my in the University of Pennsylvania, and included among 
the authorized publications of the university. In this the 
author advocates the levying of taxes by the national 
Government for the purpose of effecting " stability in 
prices " ; and on the assumption that a large and increas- 
ing percentage of the national wealth is consumed in the 
expenses of the retail distribution of commodities, proposes 
to remedy the evil by imposing a discriminating tax on 
retail dealers so heavy as to crush out all such whose busi- 
ness and profits in a given time do not exceed a certain 
amount to be prescribed by statute. Among the antici- 
pated advantages enumerated by the author of the adoption 
of such a scheme would be the saving of rent " on one half 
the stores " of cities and a great reduction of rent on the 
other half. " There would be little need of advertising ; 
. . . the stocks of goods carried by the whole trade would 
be greatly reduced, from which there would be great 
saving of capital." But " perhaps the greatest saving 
of all would arise from the reduction of the force of 
salesmen and in the cost of delivering goods." And 
finally, carried away apparently by a beatific vision of the 
glories of such a tax millennium, the professor exclaims, 
" Think of all the elements of economy in conjunction, 
and an idea can be formed of the amount of taxes that 
could be levied on retail dealers without putting the public 
to any inconvenience ! " * and " would not the unnecessary 
capital now absorbed in business be fully sufficient to 
furnish us with pure water, lovely parks, fine-art gal- 
leries/' etc. ? 

Prospective Evils of the Perversion oe the Tax- 
ing Power. — In view of such experiences and propositions, 
the questions are most pertinent: How much further is 
such a perversion of the taxing power to be carried ? And 
is not the entire recent experience of the nation in this 
respect in the direction of supplanting a " free " by a " pa- 
ternal " government, which last in turn finds its highest 
expression in the enactment of sumptuary laws for the 

* Obviously the author of this scheme supposed that the retail 
dealers of this country are such simple-minded people that they 
will cheerfully pay their proposed heavy taxes out of their capital, 
and not transfer them, through increased prices of their goods, to 
their consuming purchasers. 



EVILS OF PERVERSION. 267 

control by government of the private life of its citizens? 
All despotic power is alike in its nature; and, once in- 
dulged in, the results are always the same. Once let it 
be fully accepted as a legitimate feature of public policy 
that the great public power of taxation may be intrusted 
to individual hands for private purposes, and the power of 
life and death will be promptly seized to make the former 
effective. Once confer upon government the power of 
dealing out wealth, and the day is not far distant when 
its recipients will control the Government, and by the use 
of money elect their magistrates and legislators to per- 
petuate this policy. 

Had the framers of the Federal Constitution even so 
much as dreamed that the Government to be established 
under it would ever practically refuse to acknowledge any 
limitations on its right to interfere with the property of 
its citizens, would use the taxing power with undisguised 
intent for promoting private rather than public purposes, 
and would levy taxes to prevent the payment of taxes, the 
Constitution itself would never have been called into exist- 
ence, and the great American Eepublic would never have 
had a history.* 

* The economic student and writer (and indeed almost the 
only one) who has discussed this subject in the English language 
with originality and cogency that is most potent for conviction, 
is Mr. Theodore Bacon, of Rochester, N. Y., in an article con- 
tributed to The New-Englander in 1867, and to which the author 
acknowledges his indebtedness both in respect to ideas and lan- 
guage. 



CHAPTEE XII. 

THE SPHEEE OF TAXATION PECULIAR TO THE FEDERAL 
GOVERNMENT OF THE UNITED STATES. 

The United States presents the curious anomaly of 
a great nation existing under two systems, or dual forms 
of government; each having a sphere of action peculiar 
to itself, and both exercising the general functions of 
government, namely: the executive, the legislative, and 
the judicial. These two are the Federal or national Gov- 
ernment, existing in virtue of an agreement of union 
entered into originally by thirteen separate and inde- 
pendent States, and known as the Federal Constitution; 
and next, a system of State or divisional governments, 
existing in virtue of certain original powers retained by 
the independent ( and sovereign parties to the above agree- 
ment, and not delegated by them, in entering the Fed- 
eral Union, to any other or higher sovereignty. At the 
same time a concession of power to tax or compel con- 
tributions from persons, property, and business by each 
of these two forms of government, in order to defray 
their necessary expenditures, was obviously essential to 
their existence and continuance, and was so recognised 
from the first inception of any compact of union. But 
how to divide this power — the badge and symbol of sover- 
eignty — between two distinct sovereignties of the same 
nations, namely, the Federal Congress and the Legisla- 
tures of the several States, and impose limitations v in both 
cases on the exercise of a function so vast in its sweep 
and so imperative in its action, was one of the most 
difficult problems that confronted the framers of the 
Federal Constitution, and one without precedent in the 
world's history. The problem occasioned much discus- 
sion, and was really left unsettled — a general power being 
given to the national legislature, or Congress, " to lay and 
268 



STATE AND NATIONAL TAXATION. 269 

collect taxes, duties, imposts, and excises," with the 
limitation that " all duties, imposts, and excises shall be 
uniform throughout the United States "; that " no capi- 
tation or other direct tax shall be laid unless in pro- 
portion to the census "; that " no State shall, without the 
consent of Congress, lay any imposts or duties on im- 
ports or exports/' and that no tax or duty shall under any 
circumstances be laid on articles exported from any State. 
Under such a loose and indefinite condition of things, 
a conflict of laws and of jurisdictions was inevitable, giv- 
ing rise to controversies whose determination was really 
vital to the integrity and efficiency of the Federal Con- 
stitution. But happily, owing to the firmness and wisdom 
of the national tribunal (United States Supreme Court) 
before which these questions have been brought for ad- 
judication, most of the difficulties which once seemed so 
formidable have been overcome, and are now mainly in- 
teresting as matter of history. 

One of the earliest and most celebrated of these con- 
troversies culminated, as it were, in a case or suit known 
as McCulloch vs. Maryland, which came before the Su- 
preme Court of the United States and was decided in 
1819, under the following circumstances: Congress in 1815 
chartered a national (United States) bank, which as a 
legitimate and authorized feature of its organization estab- 
lished branches in the States, with power to issue circulat- 
ing notes. This measure proved unpopular in many of 
the States, and attempts were made by them to resist the 
various operations of this banking institution within their 
territory. Foremost among these was the State of Mary- 
land, which, through an enactment of its Legislature, re- 
quired every bank doing business in the State, and not 
chartered by the State, either to pay a stamp duty on 
every note issued, or pay a tax of $1,500 in .gross per an- 
num, and in addition imposed certain penalties on all the 
officers of a bank violating the law, and upon every per- 
son who had any agency in circulating such notes. Con- 
temporaneously, also, the State of Ohio imposed an annual 
tax of $50,000 upon the branch bank of the United States 
established in that State. 

The validity of the Maryland statute having been 
affirmed by the Court of Appeals, the highest court of 



2?0 THE THEORY AND PRACTICE OF TAXATION. 

law in that State, and an action having been brought for 
the enforcement of a penalty against an official of the 
Maryland branch (United States) bank for a violation of 
the State law, the defendant — one McCulloch, the cashier 
of the said branch bank — thereupon brought the case (as 
involving an interpretation of the Federal Constitution) 
by writ of error before the United States Supreme Court. 
A little reflection will abundantly satisfy the reader 
that the question involved in this procedure was of the 
greatest importance, inasmuch as it necessitated certain 
rational and fundamental conclusions that had not pre- 
viously been authoritatively reached and popularly ac- 
cepted, respecting the nature and power of the Federal 
Government; and a definite interpretation of the letter 
and spirit of certain features of the Federal Constitution 
which, as the action of the States before noticed demon- 
strated, had, to say the least, been heretofore regarded as 
ambiguous. So that, whatever might be the decision of the 
court, the consequences were certain to be most momen- 
tous. Thus, if the right of a State to tax — which prac- 
tically involved the right to destroy the instrumentalities 
of the Federal Government, was denied, then such Gov- 
ernment rested on sure foundations. If, on the other 
hand, to quote the language of the court, " the right of 
the State to tax the means employed by the General Gov- 
ernment be conceded, the declaration that the Constitu- 
tion and laws made in pursuance thereof shall be the 
supreme law of the land is an empty and unmeaning dec- 
laration," and the United States, in the sense of a nation, 
would practically cease to exist. Taking also into account 
the increase in the number of States that would have to 
harmonize if anything was accomplished in a new consti- 
tutional convention, and the number of new antagonizing 
elements on the part of the several States that had arisen 
— the vexing question of the future tolerance and ex- 
tension of slavery, which finally eventuated in civil war, 
the power of Congress to create banking corporations, and 
the right of the Legislatures of the States to subject them 
to taxation, and the like — and it is very doubtful whether 
any new Federal Constitution could have been established. 
As a matter of fact, the Federal Government and the 
union of the States came nearer disruption and dissolution 



Mcculloch versus Maryland. 271 

in 1819 than when, forty-two years subsequently, Fort 
Sumter was fired upon and the flag of the Union forcibly 
hauled down — which latter, events are generally regarded 
as constituting the leading features of the constitutional 
history of the United States. And this situation was so 
well recognized by Chief-Justice Marshall (to whom the 
nation is indebted for its preservation to a greater degree 
than has been generally recognized) as to draw from him 
the remark, preliminary to announcing the decision of the 
court, that " no tribunal could approach such a question 
as was involved without a deep sense of its importance 
and of the awful responsibility involved in the decision." * 

The decision of the court was unanimous that " the 
States have no power, by taxation or otherwise, ta retard, 
impede, burden, or in any manner control the operation 
of the constitutional laws enacted by Congress to carry 
into execution the powers vested in the General Govern- 
ment; and that the law passed by the Legislature of Mary- 
land imposing a tax on the Bank of the United States is 
unconstitutional and void." 

" If we apply," said the Chief Justice, " the principle 
for which the State of Maryland contends to the Consti- 
tution generally, we shall find it capable of changing 
totally the character of that instrument. We shall find it 
capable of arresting all the measures of the Government, 
and of prostrating it at the foot of the States. The 
American people have declared their Constitution and 
the laws made in pursuance thereof to be supreme; but 
this principle would transfer the supremacy, in fact, to 
the States. If the States may tax one instrument em- 
ployed by the Government in the execution of its powers, 
they may tax any and every other instrument. They may 
tax the mail; they may tax patent rights; they may tax the 
papers of the custom house; they may tax judicial process; 
they may tax all the means employed by the Government, 
to an excess which would defeat all the ends of govern- 
ment. This was not intended by the American people. 



* " No more impressive words are to be found in any English 
or American adjudication than those uttered by Chief -Justice 
Marshall as a preamble to the judgment in this most interesting 
and important case." — Francis Hillard, The Law of Taxation. 



272 THE THEORY AND PRACTICE OF TAXATION. 

They did not design to make their Government dependent 
on the States." 

• The court, however, held that its decision did not de- 
prive " the States of any resources which they originally 
possessed. It does not extend to a tax paid by the real 
property of the hank, in common with the other real 
property within the State, nor to a tax imposed on the 
interest which the citizens of Maryland may hold in this 
institution, in common with other property of the same 
description throughout the State. But this is a tax on 
the operation of the hank, and is consequently a tax on 
the operation of an instrument employed by the Govern- 
ment of the Union to carry its powers into execution. 
Such a tax must be unconstitutional." * 

The successful counsel in this case were Daniel Web- 
ster and William Pinkney, and in the course of his decision 
the Chief Justice complimented the counsel on both sides 
as maintaining the affirmative and negative with a splen- 

* The following additional extracts from the decision of the 
court in this celebrated case will help to a further elucidation 
of its involved subject-matters: 

" In the case now to be determined," said the chief justice, 
" the defendant, a sovereign State, denies the obligation of a law 
enacted by the Legislature of the Union; and the plaintiff, on 
his part, contests the validity of an act which has been passed 
by the Legislature of that State. The Constitution of our coun- 
try, in its most interesting and vital parts, is to be considered; 
the conflicting powers of the Government of the Union and of its 
members are to be discussed; and an opinion given which may 
essentially influence the great operations of the Government. No 
tribunal can approach such a question without a deep sense of its 
importance and of the awful responsibility involved in its decision. 
But it must be decided peacefully, or remain a source of hostile 
legislation — perhaps of hostility of a still more serious nature; 
and if it is to be so decided, by this tribunal alone can the de- 
cision be made. On the Supreme Court of the United States has 
the Constitution of our country devolved this important duty. 
The sovereignty of a State extends to everything which exists 
by its own authority, or is introduced by its permission; but it 
does not extend to those means which are employed by Congress 
to carry into execution powers conferred on that body by the 
people of the United States. We think it demonstrable that it 
does not. These powers are not given by the people of a single 
State; they are given by the people of the United States to a 
Government whose laws, made in pursuance of the Constitution, 
are declared to be supreme. Consequently, the people of a single 
State can not confer a sovereignty which will extend over them." 



TAXATION OF NATIONAL INSTRUMENTS. 273 

dour of eloquence and a strength of argument seldom, if 
ever, surpassed. 

It may also be added that no decision of the United 
States Supreme Court, or of any other court in the United 
States, has since impugned the correctness of the prin- 
ciple upon which the case of McCulloch vs. Maryland was 
decided. A brief notice, however, of subsequent judicial 
proceedings is interesting and necessary to complete the 
history of this celebrated case. 

Thus, the Legislature of Ohio having, as before stated, 
imposed an annual tax of $50,000 upon the branch of the 
Bank of the United States established in that State before 
the decision in the McCulloch case, the State officers, even 
after the decision, proceeded to levy and collect the tax. 
Thereupon the case was again brought before the United 
States Supreme Court on an application for injunction, and 
was reargued, with reliance upon the point that the bank 
was a mere private corporation, whose chief object was indi- 
vidual trade or profit. The court, however, at once re- 
affirmed its former judgment, and held that the bank 
was a public corporation, created for national purposes, 
and an instrument for carrying into effect the national 
powers. At the same time the opinion of the court in 
the McCulloch case, that its decision " did not deprive a 
State of any resources it originally possessed/' remained 
unaffected. 

Subsequently a case came before the United States 
Supreme Court (Weston vs. the City of Charleston, S. C.) * 
in which the question involved was the right of a State 
to tax stock issued for loans made to the United States, 
whether on the stock, eo nomine or included in the ag- 
gregate of the tax-payers' property to be valued at what 
it was worth. The court, by Chief -Justice Marshall, held 
" that a tax on stock of the United States, held, by an in- 
dividual citizen of a State, is a tax on the power to borrow 
money on the credit of the United States, and can not be 
levied on the authority of a State consistently with the Con- 
stitution," and, further, " that if the right to impose a tax 
exists, it is a right which in its nature acknowledges no 
limits. It may be carried to any extent within the juris- 

* 2 Peters, 449. 



274 THE THEORY AND PRACTICE OF TAXATION. 

diction of the State or corporation which imposes it, which 
the will of such State or corporation may prescribe. Can 
anything," continued the Chief Justice, " be more dan- 
gerous or more injurious than the admission of a prin- 
ciple which authorizes every State and every corporation 
in the Union which possesses the right of taxation to 
burden the exercise of this (borrowing) power at their dis- 
cretion? " A tax on the stock or bonds of a State is 
therefore a tax on the borrowing power of such State. 

The court further held that a tax of this description 
was a tax upon contracts,* using the following language: 
" Congress has power to borrow money on the credit of 
the United States. The stock it issues is evidence of a 
debt created by the exercise of this power. The tax in 
question is a tax upon the contract subsisting between the 
Government and the individual. It bears directly upon the 
contract. While subsisting and in full force, the power 
operates upon the contract the instant it is framed, and 
must imply a right to affect that contract. If the States 
and corporations throughout the Union possess the power 
to tax a contract for the loan of money, what shall arrest 
the principle in its application to every other contract? 



* What interpretation the Supreme Court puts upon the word 
" contract," as found in that clause of the Constitution of the 
United States which provides " that no State shall pass any law 
impairing the obligations of contracts," is made clear by the fol- 
lowing language employed by Chief-Justice Marshall in giving 
the opinion of the court in the celebrated case of the Trustees 
of Dartmouth College vs. Woodward : " The term contract must 
be understood as intended to guard against a power of at least 
doubtful utility, the abuse of which had been extensively felt, and 
to restrain the Legislature in future from violating the right to 
property; that anterior to the formation of the Constitution a 
course of legislation had prevailed in many if not all of the States 
which weakened the confidence of man in man, and embarrassed 
all transactions between individuals, by dispensing with a faith- 
ful performance of engagements. To correct this mischief by re- 
straining the power which produced it, the State Legislatures were 
forbidden ' to pass any law impairing the obligation of contracts ' — 
that is, of contracts respecting property, under which some indi- 
vidual could claim a right to something beneficial to himself; and 
that, since the clause in the Constitution must in construction 
receive some limitation, it may be confined, and ought to be con- 
fined, to cases of this description — to cases within the mischief it 
was intended to remedv." 



TAX ON INTERSTATE COMMERCE. 275 

What measure can Government adopt which will not be 
exposed to its influence? The right to tax the contract 
to any extent, when made, must operate upon the power 
to borrow before it is exercised, and have a sensible influ- 
ence on the contract. The extent of this influence de- 
pends on the will of a distinct government. To any ex- 
tent, however inconsiderable, it is a burden on the opera- 
tions of government. It may be carried to an extent which 
shall arrest them entirely." 

As a sequence to these decisions of the United States 
Supreme Court, not only has the general principle that no 
State of the Federal Union can impose any tax upon any 
agency of the Federal Government — as its mails, its build- 
ings, its lands, its ships, its money, and the like — come 
to be universally recognised as in the nature of an un- 
questionable law of the land, but the question of the appli- 
cation of the principle in respect to many cases to which 
some latitude of opinion was legitimate, has been specially 
and definitely determined. Thus, for example, it has been 
established, that a State can not impose license taxes upon 
persons passing through or coming into it merely for a 
temporary purpose, especially if connected with interstate 
commerce; a State, furthermore, can not enact any law 
or establish any regulation affecting interstate commerce, 
inasmuch as the same would be an unauthorized in- 
terference with the power given to Congress on the sub- 
ject. Interstate commerce also can not be taxed at all 
by a State statute, even though the same amount of tax 
should be laid on commerce which is carried on solely 
within the State; and the negotiation of sales of goods, 
which are in another State, for the purpose of introducing 
them into the State into which said negotiation is made, 
has been held to be interstate commerce. A tax levied by 
the State of Michigan of one cent and a half a ton on 
iron ores, if taken out of the State for smelting, while 
exempt if smelted within the State, was held by the 
United States Supreme Court to be a tax on commerce and 
therefore void. 

A State statute which levies a tax upon the gross re- 
ceipts of railroads for the carriage of freights and pas- 
sengers into, out of, or through a State has been held to 
be a tax upon commerce between the States, and therefore 



276 THE THEORY AND PRACTICE OF TAXATION. 

void. Under the provision of the Federal Constitution 
that " no State shall, without the consent of Congress, 
lay any imposts or duties on imports or exports, except 
what may be absolutely necessary for executing its inspec- 
tion laws/' some difficulty has been experienced in indicat- 
ing with sufficient accuracy for practical purposes, the 
point of time at which articles brought into the country 
from abroad cease to be regarded as imports in the sense 
of constitutional protection, and become liable to State 
taxation. But it has been held by the United States Su- 
preme Court that where the importer has so acted upon 
the thing imported that it has become incorporated and 
mixed up with the mass of property in the country, it 
has lost its distinctive character as an import, and be- 
come subject to the taxing power of the State; but while 
remaining the property of the importer, in his warehouse, 
in the original form or package in which it was imported, 
a tax upon it is too plainly a duty upon imports to escape 
the prohibition in the Constitution. The deductions from 
a contrary rule would be manifestly as follows: " No goods 
would be imported if none could be sold. The same power 
that imposes a light duty can impose one that amounts to 
prohibition. A duty on imports is a tax on the article, 
which is paid by the consumer. The great importing 
States would thus levy a tax on the nonimporting States," 
as was done under articles of the Confederation prior to 
the adoption of the Federal Constitution. " This would 
necessarily produce countervailing measures." 

In the case of Brown vs. Maryland, where the latter 
State, for revenue purposes, required a merchant to take 
a license and pay fifty dollars before he should be al- 
lowed to sell a package of imported goods, the court (by 
Chief-Justice Marshall) held that this tax, though indirect 
in form (i. e., a license on the person of the importer), was 
in fact equivalent to a duty on imports, and therefore 
illegal; and that the right to import carried with it the 
right to sell.* 

* As an extension of the history of this case the following futile 
criticism of a former chairman of the Board of Assessors of the 
City of Boston (report for 1871) is pertinent: "There is certainly 
a broad distinction between the prohibition of the right to sell 
an imported article and the right to tax the same as property. 



LIMITATIONS ON FEDERAL TAXATION. 277 

This decision has been carefully recognised by the 
authorities of the several States in dealing with imported 
liquors under local license acts. " Under its police powers 
there is no constitutional restraint on a State prohibiting 
the retail and internal traffic in ardent spirits. But a 
State is at the same time bound to receive and permit the 
sale by the importer of any article of merchandise which 
Congress authorizes to be imported, but it is not bound to 
abstain from the passage of laws which it deems proper to 
guard the health or morals of its citizens, although the 
effect of such laws may be to discourage importation, and 
diminish the profits of the importer and the revenue of 
the General Government." — Burroughs, On Taxation. 

Limitations of the Taxing Powek of the Federal 
Government. — If the States can not tax the agencies or 
instrumentalities by which the Federal Government per- 
forms its functions, it would seem clearly to follow that 
for like reasons the Federal Government can not tax State 
instrumentalities or agencies. 

That such reciprocal limitations are natural and neces- 
sary, and exist by implication, not only in the Constitu- 
tion of the United States, but also in the very structure 
of the Federal Union, must be evident, when one reflects 
that otherwise the Federal Government on the one hand, 
and the governments of the States on the other, might im- 
pose taxation to an extent that would cripple, if not wholly 
defeat, the operations of the two authorities, each within 
its respective and proper sphere of action. Or, in other 
words, if the Federal and the State governments had each 
unrestricted power to tax, or, what is equivalent, " the 
power to destroy," they might, and as experience proves 

The decision of the United States Court was to the effect that the 
State could not enact a law that would prevent the sale of such 
property, and did not touch the question of the right to tax. In 
a recent decision of the Supreme Judicial Court of Massachusetts 
(Dunbar vs. Boston, 101 Mass., 317), where the question was 
raised that the Commonwealth could not tax a stock of liquors, 
the sale of which, by her laws, she had declared illegal, the court 
sustained the tax, upon the ground that the case did not show 
that the goods could not be legally sold. As the law stood at 
the time the decision was given, but one class of the plaintiff's 
stock of intoxicating liquors could legally be sold; and that was 
his importations in the original packages." 



278 THE THEORY AND PRACTICE OF TAXATION. 

they probably would, effectually destroy efficient govern- 
ment in both cases, and the necessity and validity of such 
reciprocal limitations have been recognised and enforced 
by the courts of the United States whenever this question 
has been brought before them for adjudication. Thus, in 
the case of Day vs. Buffington, United States Circuit 
Court, Massachusetts District, it was held that the salary 
of a State official, in this particular instance a judge of 
probate, could not be legally subjected to assessment for 
an income tax, under the laws of the United States au- 
thorizing the assessment and collection of internal rev- 
enue; and Congress, some years since, acting under the 
advice of the United States Supreme Court, repealed so 
much of an internal revenue act as previously required the 
affixing of stamps to State processes, warrants, commis- 
sions, etc. In the case of Warren vs. Paul, 22 Ind., 279, 
the court used the following language : " The Federal Gov- 
ernment may tax the Governor of a State or the clerk of a 
State court and his transactions as an individual, but not 
as a State officer. This must be so, or the State may be 
annihilated at the pleasure of the Federal Government. 
The Federal Government may, perhaps, take by taxation 
most of the property in a State if exigencies require, but 
it has not a right by direct or indirect means to annihilate 
the functions of the State government." 

In a recent debate in the United States Senate on a 
proposition to appropriate public money for the purpose 
of establishing and maintaining higher institutions of 
learning in the District of Columbia than were offered by 
its common schools, a leading Senator (John Sherman), 
others concurring, is reported as expressing himself as 
follows: 

" I concur entirely in the opinion expressed by the 
Senator from Ehode Island (Mr. Aldrich) that we have no 
right to use the public money to establish business high 
schools. It is the duty of every community to give the 
children who are growing up a good common-school educa- 
tion, which covers a pretty wide range now, according to 
the general ideas of our people, and there the duty should 
stop. Money for this purpose should be contributed by 
private persons. We do our duty when we furnish a fair, 
common-school education to the children that are grow- 



TAXES ON STATE INSTRUMENTS. 279 

ing up among us" — i.e., in the District of Columbia — 
"and that is all we ought to contribute." 

Can Congress authorize the States to tax Na- 
tional Instrumentalities? — In the popular discussions 
which have occurred in recent years in reference to the 
taxing of United States securities, the position has been 
not infrequently taken that it would have been just and 
expedient on the part of Congress, at the time of the 
creation of the present national debt, to have allowed 
the separate States to tax the evidences of such debt (i. e., 
the bonds) in the possession of their citizens, subject to a 
limitation that the same should not be taxed at any differ- 
ent rate than other " moneyed capital." A full considera- 
tion of the whole subject will, however, suggest a doubt 
whether Congress possesses the power to grant any such 
authorization, inasmuch as to have done so would have 
been equivalent to authorizing the States to do an act 
which in itself is unconstitutional — a thing which it is self- 
evident that Congress can not do. Thus " the poiver to 
tax" says Chief-Justice Marshall, in giving the opinion 
of the Supreme Court denying the right of Maryland to 
tax the Bank of the United States, " involves the power to 
destroy"; and in the case of Weston vs. The City of 
Charleston, the same court, by the same eminent author- 
ity, held further, as before shown, " that if the right to 
impose a tax exists, it is a right which in its nature acknowl- 
edges no limits." For Congress, therefore, to have author- 
ized the States to tax " national agencies " would have 
been equivalent to authorizing the exercise of a right to 
destroy; which right, the Supreme Court has held, can not, 
from its nature, when once existing, be limited. 

Alienation of the Taxing Power. — The application 
of the decision by the United States Supreme Court in 
the celebrated Dartmouth College case, has resulted in the 
general acceptance of the legal principle that a charter of 
incorporation by a State is a contract between the State 
and the incorporators; and if such charter contains a clause 
exempting the incorporators entirely from taxation, or for 
a definite period, a subsequent Legislature can not repeal 
the clause of exemption. Within a recent period the in- 
terest involved in this question has become so great, and 
the power of wealthy corporations who claim the benefit 



280 THE THEORY AND PRACTICE OF TAXATION. 

of this principle is so extensive, that it is desirable to 
briefly call attention to views of dissenting legal authorities 
and dissenting State courts. 

" It is claimed that the power of taxation is one of the 
sovereign powers of the State necessary to its continued 
existence, and that it was never contemplated, when the 
people through their Constitutions delegated to their rep- 
resentatives in Legislature assembled the power to make 
laws for the good of the people of the State, that this 
grant of legisaltive power carried with it the right to barter 
away with private corporations one of the essential pre- 
rogatives of the Government, the very life-blood of the 
State." * 

How one of the States of the Union — Connecticut — 
has recently thrown away valuable public franchises is thus 
graphically described by one of the leading and authorita- 
tive newspapers of New England — i. e., the Springfield 
Eepublican. We have here the astonishing fact that over 
seventy per cent of the stock capital of twenty-six mo- 
nopoly electric or " trolley " companies operated in that 
State has been issued for something other than money, 
(cash) paid in, and hence may be said to represent nothing 
but what is popularly characterized as " water." The 
bonded debt of these roads amounts to $8,690,100, or over 
three times the amount of their cash stock — i. e., $2,671,- 
240. This bonded debt, standing in comparison with a 
total stock issue, strikingly illustrates what has taken 
place: first, a gratuitous grant or franchise; second, an 
issue of bonds thereon to build the roads; third, a share 
capital, the product of the printing press, and represent- 
ing no value whatever except as an instrumentality for 
obtaining extra profits and exceptional legislation through 
its distribution. 

" This watered capitalization will in time, of course, 
pass into innocent hands, and the i rights ' of the monop- 
olies in the matter of charges will all be gauged by the 
yearly revenue in its relation to this totality of nominal 
capital. The stock waterers will have sold their water 
at handsome figures and made off, and the purchasers of 

* Burroughs On Taxation, from which authority the writer is 
mainly indebted in his presentation of this important subject. 



ALIENATION OF TAXING POWER. 281 

the water must henceforward, of course, be considered 
legitimate investors whose holdings are entitled to full 
consideration; and only until monopoly charges suffice to 
pay eight and ten per cent on all capital, watered or other- 
wise, will it be safe for any community to demand a re- 
duction of charges without bringing upon itself the charge 
of being favourable to anarchy and confiscation. 

" The people of Connecticut are preparing the way to 
pay handsomely for their electric transportation. The 
penalty of present neglect to guard and restrict closely the 
capitalization of these monopolies will fall in ugly force 
upon this and future generations; and when the time is 
ripe for municipal or State assumption of the monopolies, 
as may some time happen, the people will have the pleas- 
ure, no doubt, of paying more than face value for the 
water now so freely allowed to issue." * 

On this subject the late Chief-Justice Taney expressed 
his views as follows, in a case that came up before the 
United States Supreme Court in 1853: "The powers of 
sovereignty confided to the legislative body of a State are 
undoubtedly a trust committed to them to be executed to 
the best of their judgment for the public good; and no one 
Legislature can by its own act disarm its successors of any 
of its powers or rights of sovereignty confided by the peo- 
ple to the legislative body, unless they are authorized to 
do so by the Constitution under which they are elected. 
They can not, therefore, by contract, deprive a future 
Legislature of the power of imposing any tax it may deem 
necessary for the public service, or of exercising any other 
act of sovereignty confided to the legislative body, unless 
the power to make such contract is conferred upon them 
by the Constitution of the State. And in every contro- 
versy on this subject the question must depend on the Con- 
stitution of the State, and the extent of the power thereby 
conferred on the legislative body." 

The subject again came up before the United States 
Supreme Court in 1869, 1871, and 1872, when the ques- 
tion at each time was treated as res adjudicata (definitely 
settled). In the first of these instances Justice Miller 
thus expressed his views : " We do not believe that any 

* On a franchise tax, see the last chapter in this volume. 
19 



282 THE THEORY AND PRACTICE OF TAXATION. 

legislative body, sitting under a State Constitution of the 
usual character, has a right to sell, to give, or bargain 
away forever the taxing power of the State. This is a 
power which, in modern political societies, is absolutely 
necessary to the continued existence of every such society. 
While under such forms of government the ancient chiefs 
or heads of the government might carry it on by revenues 
owned by them personally and by the exaction of per- 
sonal service from their subjects, no civilized Government 
has ever existed that did not rely upon taxation in some 
form for the continuance of that existence. To hold, then, 
that any one of the annual Legislatures can, by contract, 
deprive the State forever of the power of taxation is to 
hold that they can destroy the Government they are ap- 
pointed to serve, and that their action in that regard is 
strictly lawful. The result of such a principle, under the 
growing tendency to special and partial legislation, would 
be to exempt the rich from taxation and cast all the 
burden of the support of government on those who are too 
poor or too honest to purchase such immunity." 

Like dissenting views have also found expression in 
various State courts. Chief-Justice Beasley, of New Jer- 
sey, for example, in commenting on the proposition that 
a charter of incorporation is a contract, says: " The entire 
contract on the part of a State, implied in such cases, is the 
supposed legislative agreement not to alter or recall the 
privilege granted. No other stipulation on the part of the 
State was ever suggested to exist, and it was the imagined 
existence of such stipulation alone which converted what 
else, in all its essential qualities as well as in its form, was 
an act of legislation, into a contract on the part of the com- 
munity with the corporators. Without such stipulation, 
having an obligatory force, I am wholly unable to conceive 
the ground of difference between the charter of a corpora- 
tion and any other act of legislation. If a statute lay no 
obligation on the State to do or refrain from doing a par- 
ticular thing or one or more particular things, such an 
enactment seems to me to be a pure act of legislation, and 
in no sense a contract." " A law which seeks to deprive 
the Legislature of the power to tax must be so clear, 
explicit, and determinative that there can be neither doubt 
nor controversy about its terms, or the consideration which 



POWER OF TAXING SOVEREIGN. 283 

renders it binding. Every presumption will be made 
against its surrender, as the power was committed by the 
people to the Government to be exercised, and not to be 
alienated." (47 Missouri, 158.) 

And Justice Cooley (one of the justices of the Supreme 
Court of Michigan), in reviewing the action of the United 
States Supreme Court, says: " It is not very clear that this 
court has ever at any time expressly declared the right 
of a State to grant away the sovereign power of taxation." 
A court in Pennsylvania has also said: "Revenue is as 
essential to government as food to individuals; to sell it is 
to commit suicide." (30 Pennsylvania, 9.) 

Turning to English jurisprudence, we have an opinion 
of Edmund Burke that the charter of the East India 
Company, in virtue of which great authority was exer- 
cised, "was a charter to establish monopoly and create 
power," and not entitled to the protection of the various 
charters of English liberty. 

So long, however, as the decision of the United States 
Supreme Court in the Dartmouth College case is not re- 
versed by the same court, the above and many other like 
expressions of opinion on the part of judges and men 
learned in the law and in constitutional history have noth- 
ing of practical significance. 



CHAPTEE XIII. 

RULES OR MAXIMS ESSENTIAL TO AN ADMINISTRATION OF 
RIGHTFUL TAXATION UNDER A CONSTITUTIONAL OR FREE 
GOVERNMENT. 

PART I. 

A presentation and discussion of the rules or maxims 
of administration which are in conformity with the fore- 
going exposition and discussion of the origin and sphere 
of taxation, and the limitations on the exercise of this 
great power which are essential to the existence and con- 
tinuance of a constitutional and free government, are 
next in order for the proper development and understand- 
ing of the general subject under consideration. Under 
such a government — one happily characterized and de- 
fined by President Lincoln as " of the people, by the 
people, and for the people " — the following rules or max- 
ims governing the administration of its lawful taxation 
would seem to be almost in the nature of economic 
axioms: 

First. No tax should be imposed by a state or govern- 
ment except by the consent of the people from whom it is 
to be collected, given either directly or by their authorized 
representatives in Congress, Legislature, or Parliament as- 
sembled. 

Second. All taxes or enforced contributions levied by 
the state in virtue of its sovereignty should be solely 
(singly) and exclusively for public purposes. 

Third. The sphere of taxation should be limited to per- 
sons, property, and business exclusively within the terri- 
torial jurisdiction of the taxing power. 

Fourth. Taxes should be reasonable, regular, and not 
arbitrary as respects method, time, and place of assessment 
and payment, and, above all, proportional. 
284 



MAXIMS OF TAXATION. 285 

Fifth. Taxation should not be employed as an agency or 
for the purpose of enforcing morality, or as an instrumental- 
ity for correction or punishment. 

Sixth. No tax should be levied the character and extent 
of which offer, as human nature is generally constituted, a 
greater inducement to the taxpayer to evade rather than pay. 

With a view of determining whether the above six 
propositions are so far fundamental and indisputable as 
to warrant their characterization as " economic axioms," 
attention is next asked to the following summary of rea- 
sons, or evidence to that effect, which may be separately 
adduced in respect to each one of them, commencing with 
the first — that no tax should be imposed by a state or gov- 
ernment except by the consent of the people from whom 
it is to be collected, given either directly or by their au- 
thorized representatives in Congress, Legislature, or Parlia- 
ment assembled. " The right is then wedded to the power, 
and representation and taxation become correlative." — 
Miller, Justice Samuel F., on the Constitution. 

It requires no great amount of thought to see that 
the principle involved in this proposition is not only an 
essential feature of every just system of taxation, but also 
the primary and essential condition of the existence of 
every system of free or popular government. If this is 
not at once apparent, the following brief historical retro- 
spect ought to make it so: 

The first great effort recorded in English history for 
its recognition and establishment as a fundamental prin- 
ciple of government was made by the English barons in 
1215, in their notable struggle with King John, and re- 
sulted in the incorporation in the Great Charter (Magna 
Carta) of England of a provision which substantially for- 
bade the king from imposing any taxes, except by permis- 
sion of the General Council of the nation, duly summoned 
under writs regularly issued.* And it is interesting to 

* The exact language of the charter was : " No scutage or aid 
shall be imposed in our kingdom unless by the general course of 
the nation, except for ransoming our person [i.e., the king], mak- 
ing our eldest son a knight, and once for marrying our eldest 
daughter ; and for these there shall be taken a reasonable aid " ; 
the barons in turn agreeing that " we will not for the future grant 
to any one that he may take aid of his own free tenants," other 
than the aids above stated. 



286 THE THEORY AND PRACTICE OF TAXATION. 

note, as showing the broad spirit of generous patriotism 
animating these rough old barons in their contest with 
King John, that they stipulated in the Magna Carta 
which they extorted from him that every limitation im- 
posed in it for their protection upon the feudal rights of 
the king should be also imposed upon their rights as mesne 
lords (i. e., lords superior in the second degree) in favour of 
the undertenants who held of them. 

In the many confirmations of the Great Charter in the 
ensuing reigns of Henry III and Edward I, its vital clauses 
as to taxation and the National Council were, however, in- 
variably and intentionally omitted; and the latter king 
so reasserted the taxing power of the crown as to alarm 
the nation and occasion a revolution (Barons' War, 1297), 
which for many subsequent years prevented any like as- 
sumption on the part of Edward's successors. Under the 
reign of Charles I the authority to levy and collect taxes in 
England was, however, again claimed — as it was in all the 
other European states — to be vested exclusively in the king ; 
and on the trial of John Hampden, in 1636, for his refusal 
to pay a tax known as " ship money," arbitrarily levied by 
the king for the maintenance of a naval force, this was the 
position taken by the crown lawyers representing the 
prosecution and accepted as valid by the judges in their 
verdict, the attorney general using in his plea language 
almost identical with that employed by Louis XIV, before 
cited, in denning his prerogative.* 

But when absolutism in government was overthrown in 
England in 1653, and a constitutional government estab- 
lished, no one principle was recognised as more funda- 
mental than that the executive could levy no taxes except 
such as had been granted by the people taxed, through 
their representatives; and one of the very first statutes 
enacted by Parliament in 1689, under the reign of Wil- 
liam and Mary, and accepted by the crown, was that all 
levying of money for the crown by pretence of prerogative 
should be hereafter and forever illegal ; and secondly, in the 
latter third of the next century (1770), the unqualified 
affirmation and defence of the principle that those who pay 
the taxes should control the levying of them became the 

* See page 128, ante. 



TAXATION FOR PUBLIC PURPOSES. 287 

primary cause of the American Bevolution, and eventu- 
ated in calling the United States into existence. And 
hence, by reason of such experiences, it has become a part 
of the common law of all English-speaking people that the 
taxing power inherent in the state is vested exclusively 
in the legislative department of its government. 

Second. All taxes or enforced contributions levied by 
a state in virtue of its sovereignty should be solely (singly) 
and exclusively for public purposes. 

Another and perhaps a more popular way of expressing 
this principle would be, to put it in the form of an affirma- 
tion, namely: All taxes that the people pay, the government 
should receive. 

All recognised authorities, judicial and economic, are 
agreed in regarding the above proposition as in the light 
of a political axiom from which there can be no rational 
dissent. From a great number of confirmatory and illus- 
trative legal opinions and decisions the following are espe- 
cially worthy of attention: 

" No State government, nor that of the United States, 
nor any other authority professing a regard for the rights 
of the people, is at liberty to take money out of their 
pockets for any other than a public purpose. Whenever it 
can be discovered that a tax is levied for something which 
properly can not be called such, it may be successfully 
resisted by all the measures that the law allows in courts 
of justice/' — Miller, Justice 8. F., Lectures on the Constitu- 
tion of the United States, p. 2J+2. 

" Taxation, by the very meaning of the term, implies 
the raising of money for public uses, and excludes the 
raising of it for private objects and purposes." — Allen vs. 
Inhabitants of Jay, 60 Maine (per Appleton, C. J.). 

" Taxation is allowable only for public purposes. The 
name (taxation) is not rightfully applied with reference to 
objects of a private nature, such as a bridge, manufactory, 
or foundry owned by individuals. An act of the Legis- 
lature authorizing a levy for a mere private purpose, or 
for a purpose which, though public, is one in which the 
people from which it is exacted have no interest, would not 
be a law, but a judicial sentence." — Hillard, Law of Taxa- 
tion, 1875. 

What are public purposes? This question is an embar- 



288 THE THEORY AND PRACTICE OF TAXATION. 

rassing one, and in attempting to answer it there is oppor- 
tunity for much latitude of opinion. In the first place, 
the ordinary or dictionary definition of the term " public," 
as forming a part of the above question, is certainly in- 
felicitous and ambiguous — namely, " pertaining to a na- 
tion, state, or community; extending to the whole people " 
(Webster). Thus, for example, under a purely despotic 
form of government any exaction of contributions (taxes) 
from the people, and expenditures resulting therefrom, 
which the heads of the state may decree, be it for the 
expenses of a harem, the amusement or dignity of royalty, 
the reward or pensions of court favourites, or the main- 
tenance of a military force for the subjugating of the 
people, would be held to be for a public purpose, and any 
subject that should undertake to contravene this assump- 
tion would be amenable to punishment and perhaps to 
the charge of treason. 

On the other hand, under all popular or constitutional 
governments it would not probably be disputed, that taxa- 
tion should have but one object and taxes but one destina- 
tion — namely, to supply the expenses necessitated by those 
services which, according to established usage, it is the 
business of government to provide, and in contradistinc- 
tion to those which private inclination, interest, or liberal- 
ity will supply whenever a necessity or demand for such 
action becomes sufficiently manifest. Any form of levy, 
therefore, under such a government upon the person or 
property of its citizens that does not conform to these con- 
ditions is not for a public purpose and is not entitled to be 
called taxation. 

The following further amplification of these proposi- 
tions by the Supreme Court of Massachusetts has probably 
also the unqualified indorsement of all judicial authorities 
in the United States: 

" The incidental advantage to the public, or the State, 
which results from the promotion of private interests and 
the prosperity of private enterprise or business, does not 
justify their aid by the use of public money raised by 
taxation, or for which taxation may become necessary. 
It is the essential character of the direct object of the 
expenditure which must determine its validity as justify- 
ing a tax, and not the magnitude of the interest to be 



DEFINITION OF PUBLIC PURPOSE. 289 

affected, nor the degree to which the general advantage 
of the community, and thus the public welfare, may be 
ultimately benefited by their promotion. The principle of 
this distinction is fundamental. It underlies all govern- 
ment that is based upon reason rather than upon force." 
— Lowell vs. Boston, 111 Mass., 1/51/. 

" It has become a favourite maxim that it is the duty 
of government to promote the happiness of the people. 
The phrase may be interpreted so as to mean well, but it 
is a very inaccurate and unhappy one. It is the inalien- 
able right of men to pursue their own happiness, each man 
under such restraint of law as will leave every other man 
equally free to do the same. The happiness of the people 
is the happiness of the individuals who compose the mass. 
Speaking now with reference to those objects only which 
human laws can reach and influence, he is the happy man 
who sees his condition in life constantly and gradually, 
though it may be slowly, improving. Let government keep 
its hands off, do nothing in the way of creating the subject- 
matter of speculation, and things naturally fall into this 
channel." — Sharswood, Legal Ethics. 

The distinction between a public and a private pur- 
pose in respect to taxation, however, is often a matter of 
great difficulty and embarrassment; and one eminent jurist 
and writer on taxation (Cooley) has indeed declared that 
" there is no such thing as drawing a clear line of dis- 
tinction between purposes of a public and those of a pri- 
vate nature." But the question at issue has been so often 
made the subject of definition and illustration by the high- 
est courts of the United States — speaking through jurists 
of the highest conceded ability — that, although complete 
unison of opinion does not now and probably never will 
exist as to whether certain particular purposes, as expendi- 
tures by the State for bounties, facilitating transporta- 
tion, education, charities, amusements, celebrations, and 
the like, are within the requirements to make them public. 
The sphere for disagreement has, however, within recent 
years greatly narrowed. One of the most clear and com- 
prehensive of illustrations on this topic, given by the Su- 
preme Court of Michigan (People vs. Township, 20 Michi- 
gan, 452), through Justice Thomas M. Cooley, was as 
follows: 



290 THE THEORY AND PRACTICE OP TAXATION. 

" In respect to ' certain things of absolute necessity to 
civilized society/ the State is precluded either by express 
constitutional provisions or by necessary implications, from 
providing for at all, and which are thus left wholly to the 
fostering care of private enterprise and private liberality. 
We concede, for instance, that religion is essential, and 
that without it we should degenerate to barbarism and 
brutality; yet we prohibit the State from burdening the 
citizen with its support, and we content ourselves with 
recognising and protecting its observance on similar 
grounds. Certain professions and occupations in life are 
also essential, but we have no authority to employ the 
public money to induce persons to enter them. The 
necessity may be pressing and to supply it may be in a cer- 
tain sense to accomplish a public purpose, but it is not a 
purpose for which the power of taxation may be employed. 
The public necessity for an educated, skilful physician 
in some particular locality may be great and pressing, yet, 
if the people should be taxed to hire one to locate there, 
the common voice would exclaim that the public moneys 
were being devoted to a private purpose. The opening of 
a new street in a city or village may be of trifling impor- 
tance as compared with the location within it of some new 
business or manufacture; but while the right to pay out 
the public funds for the one would be unquestionable, the 
other by common consent is classified as a private interest 
which the public can aid as individuals, if they see fit, 
while they are not permitted to employ the machinery of 
government to that end. Indeed, the opening of a new 
street in the outskirts of a city is generally very much more 
a matter of private interest than of public concern; yet, 
even in a case where the public authorities did not regard 
the street as of sufficient importance to induce their taking 
the necessary action to secure it, it would not be doubted 
that the moment they should consent to so accept it as a 
gift, the street would at once become a public object and 
purpose upon which the public funds might be expended 
with no more restraints upon the action of the authorities 
in that particular than if it were the most prominent and 
essential thoroughfare in the city. 

" By common consent, also, a large portion of the most 
urgent needs of society are relegated exclusively to the law 



PRIVATE AND PUBLIC PURPOSES. 291 

of demand and supply. It is this in its natural operation 
and without the interference of the Government that gives 
us the proper proportion of tillers of the soil, artisans, 
manufacturers, merchants, and professional men, and that 
determines when and where they shall give to society the 
benefit of their particular services. However great the 
need in the direction of any particular calling, the inter- 
ference of Government is not tolerated, because, though 
it might be supplying a public want, it is considered as 
invading the domain that belongs exclusively to private 
"inclination and enterprise. We perceive, therefore, that 
the term 'public purpose,' as employed to denote the ob- 
jects for which taxes may be levied, has no relation to the 
urgency of the public need or to the extent of the public 
benefit which is to follow. It is, on the other hand, merely 
a term of classification to distinguish the objects for which, 
according to settled usage, the Government is to provide, 
from those which, by the like usage, are left to private 
inclination, interest, or liberality." 

Under a constitutional and representative form of gov- 
ernment the determination of what constitutes a public 
purpose in respect to taxation rests primarily in the legis- 
lative department of such government; but legislative de- 
termination on this subject is not absolutely conclusive, for 
the question ultimately is one of law. If this was not so, a 
Legislature would possess unlimited power to make any- 
thing lawful which it might call taxation, which would 
be equivalent to an unlimited power to plunder the citi- 
zen.* 

Brief references to certain other court cases, in which 
the validity of this claim that certain taxes, or acts involv- 
ing the imposition of taxes, were for public purposes, was 
the question at issue, will also help to an understanding of 
the subject. 

In 1872 the city of Boston was authorized by the Legis- 
lature of Massachusetts to issue bonds to the amount of 
$20,000,000, the proceeds to be loaned to persons whose 

* In every case in which the Legislature shall have clearly 
exceeded its authority in this regard, and levied a tax for a pur- 
pose not public, it is competent for any one, who in person or 
property is affected by the tax, to appeal to the courts for pro- 
tection. — Cooley, Law of Taxation, p. 55. 



292 THE THEORY AND PRACTICE OF TAXATION. 

property had been destroyed by a recent great fire. The 
Supreme Court of Massachusetts held that, although such 
" a promotion of the interests of individuals might result 
incidentally in the advancement of the public welfare/' 
the measure was, " in its essential character, a private and 
not a public object," and therefore unconstitutional. — 
Lowell vs. Boston, 111 Mass. 

A similar statute enacted by the Legislature of South 
Carolina in aid of sufferers by a fire in Charleston was 
also declared by the Supreme Court of that State as uncon- 
stitutional. — Feldman & Co. vs. City of Charleston, 
S. C, 57. 

In 1870 the town of Jay, in Maine, voted to loan 
$10,000 to a firm of manufacturers, on condition that they 
would move their works to the town and establish and 
maintain them there for ten years. This vote, although 
ratified by an act of the Legislature, the Supreme Court 
of the State declared void. — Allen vs. Jay, 60 Maine, 121^. 

In connection with this case the Legislature of the 
State of Maine officially put the following question to the 
justices of its Supreme Court: " Has the Legislature au- 
thority under the Constitution to pass laws enabling towns 
by gifts of money to assist individuals or corporations to 
establish or carry on manufacturing of various kinds 
within or without the limits of said towns ? " The ques- 
tion was answered in the negative. The court used the 
following language: "There is nothing of a public nature 
any more entitling the manufacturer to public gifts than 
the sailor, the mechanic, the lumberman, or the farmer. 
Our Government is based on an equality of rights. The 
State can not rightfully discriminate among occupations; 
for a discrimination in favour of one branch of industry is a 
discrimination adverse to all other branches. The State is 
equally bound to protect all, giving no undue advantage 
or special or exclusive preference to any. Taxation in 
aid of private enterprise is to load the tables of the few 
with bounty that the many may partake of the crumbs that 
fall therefrom." 

In 1875 the Legislature of Kansas authorized town- 
ships to issue bonds for the purpose of raising money to 
be applied for the relief of such farmers within their 
limits as had been deprived, by a failure of crops, of seed 



GRANTS TO PRIVATE OBJECTS. 293 

with, which to plant for a new season. This authorization 
was held by the court (Justice Brewer) to be unconstitu- 
tional, on the ground that the use of public moneys for 
the accommodation of a certain class was not a public pur- 
pose — "not for the benefit of the indigent, but of those 
who have fields to fill and stocks to care for" — and that 
if the principle involved is once recognised, it may be in- 
voked with equal propriety in aid of other or all classes. 
— State vs. Osawlcee, 14- Kansas, ^88. 

In the State of New York its Court of Appeals has held 
void an act of the Legislature authorizing a village to take 
stock in a manufacturing corporation, and to issue bonds 
to raise the money to pay for such subscription, and to 
levy taxes for the payment of the principal and interest 
on said bonds. (Weismer vs. Douglas, 64 N. Y., 91.) In 
a similar case (Sweet vs. Hurlbert, 51 Barber) Justice 
James expressed himself as follows: 

" If this can be done, it is legal robbery; less respect- 
able than highway robbery in this, that the perpetrator of 
the latter assumes the danger and infamy of the act, where 
this act has the shield of legislative irresponsibility." 

In Cole vs. La Grange (113 U. S.), the case turned on 
an act of the Legislature of Missouri authorizing the city 
of La Grange, whenever two thirds of the resident tax- 
payers signified their approval at a special election, to 
levy a tax not exceeding two per cent per annum on the 
assessed value of the real and personal property in the 
city, to pay for a donation or subscription to the stock of a 
manufacturing company. The court held the act void; 
the opinion, written by Mr. Justice Gray, embodying the 
following language: 

" The general grant of legislative power in the Con- 
stitution of the State does not enable the Legislature, in 
the exercise either of the right of eminent domain or of 
the right of taxation, to authorize counties, cities, or towns 
to contract, for private objects, debts which must be paid 
by taxes. It can not, therefore, authorize them to issue 
bonds to assist merchants or manufacturers, whether 
natural persons or corporations, in their private business. 
These limits of the legislative power are now too firmly 
established by judicial decisions to require extended argu- 
ment upon the subject." 



294 THE THEORY AND PRACTICE OF TAXATION. 

In Burlington vs. Beasley (94 U. S., 310), however, 
taxation in aid of a public gristmill, the tolls of which the 
Legislature would have a right to regulate, was sustained; 
the construction of such a mill in a new country being 
probably a public necessity, and not possible without pub- 
lic aid. 

But perhaps the most weighty opinion on this question 
is that of the United States Supreme Court in the case of 
the Loan Association vs. Topeka, 20 Wall, 655 (before re- 
ferred to on page 231). In 1872 the Legislature of Kan- 
sas passed an act authorizing cities and counties to issue 
bonds for the purpose of encouraging the establishment 
of manufactures and other like enterprises; and under 
this act the city of Topeka created and issued its bonds, to 
the extent of $100,000, and gave the same " as a dona- 
tion," a majority of voters approving, to an iron-bridge 
company, as a consideration for establishing and operating 
their shops within the limits of the city. The interest 
coupons first due on these bonds were promptly paid by 
the city out of a fund raised by taxation for that purpose, 
but subsequently, when the second coupons became due, 
and the bonds had passed out of the possession of the 
bridge company by bona fide sale to a loan association, the 
city meanly repudiated its obligations, on the ground that 
the Legislature of Kansas had no authority under the Con- 
stitution of the State to authorize the issue of bonds, the 
interest and principal of which were to be paid from the 
proceeds of taxes, for any such purpose as the encourage- 
ment of manufacturing enterprises. Legal proceedings to 
enforce payment were thereupon commenced by the bond- 
holders in the United States Circuit Court, and judgment 
having been there given for the city, the case was appealed 
to the United States Supreme Court, where with only one 
dissenting voice (Judge Clifford) the judgment of the 
lower court was affirmed. 

The following extracts from the opinion of the court, 
given by Justice Miller, will forever stand as embodying 
economic and legal principles of the highest importance: 

" We have established, we think, beyond a cavil that 
there can be no lawful tax which is not laid for a public 
purpose. ... It may not be easy to draw the line in all 
cases so as to decide what is a public purpose in this sense 



LOAN ASSOCIATION VERSUS TOPEKA. 295 

and what is not. But in the case before us, in which towns 
are authorized to contribute aid by way of taxation to any 
class of manufactures, there is no difficulty in holding that 
this is not such a public purpose as we have been consider- 
ing. If it be said that a benefit results to the local public 
of a town by establishing manufactures, the same may be 
said of any other business or pursuit which employs capi- 
tal or labour. The merchant, the mechanic, the innkeeper, 
the banker, the builder, the steamboat owner, are equally 
promoters of the public good, and equally deserving the 
aid of the citizens by forced contributions. No line can be 
drawn in favour of the manufacturer which would not 
open the public treasury to the importunities of two thirds 
of the business men of the city or town." * 

Twelve years later a similar case was decided by the 
same United States Court in the same way. Under the 

* Here, then, we have from the Supreme Court of the United 
States a decision, as recent as October, 1874, denning the limitation 
of the power of taxation growing out of " the essential nature of 
a free government " ; and if under such natural limitation there 
is no power, as the court decided, in a State government (irre- 
spective of anything to the contrary in the Constitution of such 
State) to levy taxes for the support or encouragement of manu- 
facturers, it is difficult to see under what rule or authority the 
Federal Government can levy taxes like those now imposed, which, 
from the circumstance that they yield year after year little or 
no revenue to the national Treasury, are manifestly levied and 
maintained for other than public purposes. 

Whether, if a case involving the validity of tariff taxes like 
those above specified could be brought before the United States 
Supreme Court, it would apply the same rule of principle to the 
Federal that it has to a State government, in respect to the limita- 
tion of the sphere of taxation, may be regarded as an open ques- 
tion. An opportunity for avoiding a decision on this subject might 
be found in the assumption that there was no evidence before the 
court that any particular tariff act was passed by Congress for 
any other than revenue purposes, and that the court could not 
take cognizance of a subsequent change in circumstances growing 
out of changes in the conditions of prices and supply and demand. 
And in this connection it is curious to note that in the first tariff 
enactments of the Federal Congress, which embodied the prin- 
ciple of protection, the preambles of the act openly stated and 
recognised the objects aimed at, viz., " the support of the Govern- 
ment, and the encouragement and protection of manufactures " ; 
while in later years the latter clause, relative to manufactures, has 
been shrewdly omitted from the tariff act preambles — possibly 
from a suspicion that there was a constitutional question covered 



296 THE THEORY AND PRACTICE OF TAXATION. 

authority of a State law, the city of Parkersburg, Vir- 
ginia, had issued bonds in aid of a private enterprise. The 
court decided these bonds to be void for the reasons set 
forth in Loan Association vs. Topeka. The decision was 
rested wholly upon the decision in the earlier case, and 
there was no dissent from it, although one justice (Clifford) 
had dissented in the Topeka case. Justice Blatchford, in 
rendering the opinion, said: " Taxation to pay the bonds 
in question is not taxation for a public object. It is taxa- 
tion which takes the private property of one person for the 
private use of another person." 

Particular care has also been taken by the courts to 
close the door against the possibility of making taxation 
subservient to any private purpose by incorporating it with 
some public purpose: 

" Public aid to private purposes can not be secured by 
yoking them to a public purpose. And where the public 
and private purposes are attempted to be aided by a single 
concession, the latter vitiate rather than the former up- 
hold the grant. The entire purpose — or, if there are sev- 
eral, and no rule of apportionment as to the application 
of the proceeds — then all the purposes must be public." — 
Opinion of Justice Brewer, 28 Kansas, 7^5. 

The cases in which the above conclusions have been 
apparently antagonized before the courts of the United 
States have been numerous, and have related mainly to 
the right of the Legislatures of the several States to levy 
taxes for purposes in respect to which the paramount 
object — i. e., for public or private good — was not clearly 
evident; as for the construction of railroads, the drainage 
of land, the promotion of sanitary measures, the payment 
of bounties in aid of educational or charitable institutions 

up in this matter of protective duties which some day would not 
be found able to stand judicial examination. 

But until the contrary is proved, the opinions and judgments of 
the Supreme Court of the United States, as given in the Topeka 
case, would seem to admit of no other construction than that 
taxation for any other purpose than revenue, or taxation for pro- 
tection, or in aid of private interests engaged in manufacturing, 
is beyond the province of the legislative power of either our na- 
tional or State governments, and when imposed — to use the exact 
language of the court — " is none the less robbery because it is done 
under the forms of law and is called taxation." 



RAILROADS AS PUBLIC OBJECTS. 297 

whose property is owned by and whose policy is directed 
by private individuals, religions sects, or corporations, and 
not by the State, and the like. 

The question whether taxation by which aid was 
afforded by towns or counties to the building of railroads 
was for a public purpose, has been especially brought to the 
attention of the courts, State and Federal, in repeated 
instances; and, although the preponderance of opinion has 
been in the affirmative when legislative authority has been 
previously granted, yet the decision of the courts has 
rarely been unanimous, and in some cases has been adverse. 
Thus, in People vs. Township (20 Michigan, 452), an act 
of the Legislature of Michigan authorizing townships to 
pledge their credit to aid in the construction of a railroad 
from the city of Detroit to a suburban village was held 
void in a remarkably able opinion by Justice Cooley. 
Again, in Whiting vs. Sheboygan (25 Wisconsin, 157), an 
act of the Legislature of Wisconsin authorizing the county 
of Fond du Lac to levy a tax, the proceeds of which were 
to be given to aid the building of a railroad from the 
city of Fond du Lac to the city of Eipon, was also held by 
the court to be void. 

The argument in favour of the unconstitutionality or 
wrongfulness of the application of the proceeds of the 
taxation of the people by States or municipalities for aid- 
ing the construction of railroads has been, that they are 
built by corporations organized mainly for the purpose of 
gain; that they are under the control of such corporations 
rather than that of the State; and that the taxes in ques- 
tion went to swell the profits of individuals, and did not 
result in good to the State or benefit to the public except 
in a remote collateral way. 

On the other hand, it has been urged that roads, canals, 
bridges, navigable streams, and all other highways, have 
in all times been matters of public concern; that such 
channels of travel and of the carrying business have al- 
ways been established, improved, and regulated by the 
State; and that a railroad had not lost this character be- 
cause constructed by individual enterprise, aggregated 
into a corporation. 

In rendering an opinion in the celebrated Loan Asso- 
ciation vs. Topeka case, the court took up the question 
20 



298 THE THEORY AND PRACTICE OF TAXATION. 

whether the grants of public money or credit which have 
been made by counties and municipalities in the United 
States in aid of railroad construction were not by parity 
of reasoning equally unconstitutional as similar grants for 
establishing or encouraging manufactures have been held 
to be; and remarked that in all such cases, which have 
been numerous before the courts in every State in the 
Union, " the decision has turned upon the question 
whether the taxation by which the aid was afforded to the 
building of railroads was for a public purpose. Those of 
the judges who came to the conclusion that it was, held 
the law for that purpose valid. Those who could not 
reach that conclusion held them void. And it is safe to 
say that no court has held debts created in aid of railroad 
companies, by counties or towns, valid on any other ground 
than that the purpose for which the tax was levied was 
a public use, a purpose or object which it was the right and 
the duty of the State governments to assist by money 
raised from the people by taxation/ 7 But, continues the 
judge, " Of the disastrous consequences which have fol- 
lowed its recognition by the courts, and which were pre- 
dicted when it was first established, there can be no doubt." 

It is interesting to note in this connection that since 
the decision in this case many States of the Union have 
been forced to prohibit loans in aid of the construction 
of railroads and like enterprises in the revision of their 
Constitutions. 

When the purpose of taxation is evidently to primarily 
promote the interests of individuals — i. e., to establish a 
manufactory, a brick company, a hotel, and the like — the 
courts whose province it is to decide whether the purpose 
is public or private will as a rule undoubtedly declare it 
void. 

A noted and the almost solitary instance in which the 
above proposition and precedents have been clearly an- 
tagonized by a judicial decision is to be found in a case 
in Louisiana, where an act of the State Legislature au- 
thorizing a municipal subscription to the stock of a com- 
pany incorporated to build a theatre was held valid, on 
the ground that " it would contribute to the wealth and 
embellishment of the city, afford a place of relaxation and 
amusement, and would tend to correct and enlighten the 



SUGAR BOUNTY CASE. 299 

morals of the citizens." — First Municipality vs. New Or- 
leans Theatre Company, 2 Rob., Louisiana, 209. 

The Sugae Bounty Case of 1891. — A review of this 
department of the application of taxation would be in- 
complete that failed to notice a legal contention before 
the Supreme Court of the United States in 1891, respect- 
ing the constitutionality of the tariff act of 1890, which 
was questioned on several grounds; one of them being a 
provision requiring the payment of bounties to every pro- 
ducer of sugar of certain saccharine strength * from beet, 
sorghum, sugar cane, or maple sap, grown or produced 
within the United States. Under this provision of the 
tariff enactment of 1890, the citizen of Connecticut was 
taxed for the benefit of the farmer of Nebraska or Cali- 
fornia, and the farmer of New York for the benefit of the 
Louisiana planter; the farmer who raised wheat and corn 
at ten or twelve dollars an acre was taxed for the benefit 
of a farmer in a distant State who raised sugar cane or 
sugar beets at fifty or a hundred dollars an acre. There 
was, moreover, but little doubt that the inclusion of sugar, 
made from maple sap, in the bounty provision, was not 
originally contemplated by the originators and promoters 
of the act; inasmuch as the manufacture of such sugar is 
one of the most profitable industries of the country, and 
as a rule readily calls for a fancy or artificial price; but 
was included in the act, while under consideration by 
Congress, for the reason that its enactment into law 
would otherwise have been difficult or impossible. An- 
other interesting and anomalous feature of this case was 
that it originated in an attempt to obtain the bounty after 
the enactment (law) offering it was repealed, on the 
ground that the claimants planted cane in expectation 
of the continuance of the bounty, and would suffer loss 
if they did not get it. The question of the validity of 
the entire tariff act, by reason of the unconstitutionality 
of the bounty provision contained in it, having been raised, 
the attorney general of the United States antagonized such 
assumption before the court as follows: 



* Two cents per pound on sugar testing not less than 90° by 
the polariscope, and one and three fourths cents per pound on 
sugar testing less than 90°, but not less than 80°. 



300 THE THEORY AND PRACTICE OF TAXATION. 

First, that under the clause of the Federal Constitution 
(section 8 of Article I) which empowers Congress to levy 
taxes, duties, etc., " to pay the debts and provide for the 
general welfare " of the United States, Congress has the 
power to expend taxes for anything which, in its judgment, 
is " for the general welfare." Second, that the judicial 
decisions of the State courts, to the effect that taxation, 
to be lawful, must be for public purposes, have no applica- 
tion to this controversy, inasmuch as they were all of them 
cases of municipal taxation, which must be for public 
municipal purposes; and that it is obvious that the estab- 
lishment of a particular industry in one place, by a bonus 
to specified private individuals, is a very different object 
for taxation than the encouragement by the national Gov- 
ernment of a widespread industry in many quarters of the 
Union for national purposes, with a view of diversifying 
the industries of the country and making it independent 
of other countries for its necessities." — {Speech of United 
States Attorney-General Miller.) Third, that the assump- 
tion that " public purposes " in respect to taxation by 
Congress means something different than the same phrase 
when applied to State taxation is sustained by instances in 
which Congress has authorized the expenditure of public 
moneys for bounties or relief to people in this and other 
countries; some forty cases of this character being cited, 
in which relief in the form of money or supplies was given 
to sufferers by fire, grasshoppers, overflow of the Missis- 
sippi, yellow fever, earthquakes (one in Venezuela, South 
America), and for defraying the expense of transporting 
food to Ireland, France, and Germany. To these instances 
may perhaps be added the " codfish bounty," which was 
practically a drawback upon the duty on imported salt used 
for preserving fish. 

In rejoinder it was contended: First, that if Congress 
has power to expend taxes for anything which in its judg- 
ment is "for the general welfare," then there is practi- 
cally no limitation whatever upon its constitutional power 
to raise and appropriate taxes; and that its power to treat 
the public purse as its own and give away the proceeds of 
taxation is as unlimited as is the cupidity of congressional 
lobbyists. It was also ingeniously pointed out that the 
position of the attorney-general was equivalent to saying 



GENERAL WELFARE. 301 

that when a tax is levied by a State for a given purpose it 
is not for public use, but when levied by the national 
Government for the same or a like purpose it is for public 
use. Again, such an assumption of unlimited power on 
the part of Congress directly antagonizes the opinions of 
Chief-Justice Marshall (see page 230) and also the declara- 
tion, made in special reference to the taxing power, by the 
United States Supreme Court through Mr. Justice Miller 
in the Topeka case (page 232), " That the theory of our 
governments, State and national, is opposed to the deposit 
of unlimited power anywhere." Justice Story (on the Con- 
stitution, section 990) also asks and answers the precise 
question at issue: "Has Congress a right to raise and ap- 
propriate the public money to any and to every purpose 
according to their will and pleasure? They certainly have 
not." The same jurist, in his lectures on the Constitution, 
thus further amplified his ideas on this subject, and evi- 
dently thought that he had in the following brief para- 
graphs brought the argument in support of the " un- 
limited " theory to a reductio ad absurdum. 

66 A power to lay taxes for the common defence and gen- 
eral welfare of the United States is not in common sense 
a general power." It is " a power exclusively given to 
raise revenue, and it can constitutionally be applied to 
no other purpose. The application for other purposes is 
an abuse of the power; and in fact, however it may be in 
form disguised, is a premeditated usurpation of authority." 
A grant under the Constitution to Congress " to do any 
act they pleased which ought to be for the good of the 
Union . . . would reduce the whole instrument to a single 
phase, that of instituting a Congress with power to do 
whatever would be for the good of the United States; and 
as they would be the sole judges of good or evil, it would 
also be a power to do whatever evil they pleased " (1 Story, 
Constitution, section 926). 

Second, to the assumption that the decisions of the 
State courts in respect to the limitations of the power of 
taxation do not apply to this controversy, it was replied 
that the relation of the State courts to their State Consti- 
tutions is substantially the same as that existing between 
the Federal Supreme Court and Congress; that the State 
decisions (which have not been, as was claimed, " all cases 



302 THE THEORY AND PRACTICE OF TAXATION. 

of municipal taxation") frequently treat such legislation, 
independently of Constitutions, as being in violation of 
natural right, and that there are limitations imposed upon 
legislative power by reason of " general principles " has 
been recognised by the United States Supreme Court 
(Bartemeyer vs. Iowa, 12 Wallace). It would further seem 
that natural rights must be the same, whether against 
legislation by Congress or by the Legislature of a State. 
If a State can not levy and expend taxes for other than 
public purposes, it may be presumed, a fortiori, that the 
national Government can not, " for the former can do 
anything which the Constitution (and natural right) do 
not forbid; while the latter can do nothing which the 
Constitution does not first sanction." The Federal Gov- 
ernment has " no right to raise money by taxation for a 
thousand things for which the State may impose taxes 
and collect them of the people." — Miller, Justice, Lectures 
on the Constitution. 

Third, in respect to the instances cited, in which Con- 
gress has expended moneys for bounties, or relief of private 
interests, in this and other countries, it was replied that 
they were all matters of national charity; were never sub- 
jected to judicial scrutiny, or even seriously challenged in 
debate ; were never for large amounts, and did not contem- 
plate any special levy of taxes, but were from funds al- 
ready in the Treasury. It was also claimed that this was 
the first case in which the constitutionality of a congres- 
sional bounty, whether direct or indirect, for " protection," 
has ever been before the United States Supreme Court for 
discussion. And pertinent to the case it should be further 
noted, that when it was proposed in the Convention that 
framed the Federal Constitution to incorporate in it a 
provision for bestowing " rewards " for " the promotion 
of agriculture," the proposition was rejected. 

The facts about the bounty for codfisheries are, that it 
was given under the first revenue laws (levying duties) 
of the United States in 1792, and was intended to offset 
bounties and other measures adopted by England, as was 
believed, for the purpose of destroying the fisheries, not 
only of the United States, but also of France. Its enact- 
ment was strenuously resisted at the time, on constitu- 
tional grounds, and especially by as good a constitutional 



BOUNTIES AND THE CONSTITUTION. 303 

authority as Madison, who held that the enactment of a 
bounty was beyond the power of Congress (4 Elliot's De- 
bates, Philadelphia edition, 1875, 525, 526). Its legality 
was never judicially examined, and the act expired by its 
own limitation in seven years. Subsequent acts expressing 
limitation were passed of the same character from time 
to time; and since their final expiration, many years ago, 
it is claimed that no Congress, until the Fifty-ninth, 1890, 
has asserted its right to levy taxation embodying the 
bounty principle. 

The court, in giving an opinion affirming the constitu- 
tionality of the tariff act of 1890, evaded the question of 
the constitutionality of its bounty provision, on the ground 
that the invalidity of one part of a revenue act does not 
invalidate the whole act; and when that principle was 
settled, the objections to the act based on separate clauses 
really disappeared.* 

The disbursement of the money voted by Congress for 
the payment of the sugar bounties having been withheld 
by the Comptroller of the United States Treasury on the 
ground that the appropriation was unconstitutional, the 
court held that if Congress made promises and thereby 
induced people to incur expenses which they would not 
otherwise have incurred, and has then appropriated the 
money to indemnify the parties, the payment can not be 
stopped by an administrative officer on the ground of the 
unconstitutionality of the primary bounty enactment. 

A question of interest in connection with this case, 
which may naturally suggest itself, especially to those not 
learned in the law, is, How happens it that repeated acts 
of expenditure of money raised by taxation for admittedly 
private purposes have been authorized by Congress, with- 
out any challenge before the proper courts of their consti- 
tutionality? The answer is to be found in the legal fact 
that " the question of the constitutionality of a law can 
never be presented and determined abstractly. It must 
always be raised by somebody whose person or property is 
affected by the execution of the statute the validity of 

* One of the best reviews of this celebrated case, one to which 
the writer has been greatly indebted, is to be found in an article 
contributed to and published in the Harvard Law Review for 
February, 1892, by Charles B. Chamberlain, Esq., of Boston. 



304 THE THEORY AND PRACTICE OF TAXATION. 

which he impugns. Until the opportunity for raising 
and the individual who can raise the question of constitu- 
tionality present themselves, there can be no presumption 
from the existence of such legislation upon the statute- 
book." 

In Maine, a law which for more than half a century — 
almost as long as the State has existed — had been enforced, 
and reproduced in each revision of the statutes, was de- 
clared unconstitutional so soon as challenged; the chief 
justice meeting the reason for such acquiescence by say- 
ing that " the judicial opinion and the public sense were 
not so much awakened to the principle underlying this 
then as now." (Brief of Smith and Clarke, averring the 
unconstitutionality of the tariff act of 1890.)* 

The nature, definition, and limitations of the service 
for public purposes, which a free representative govern- 
ment can render or perform by the expenditure of moneys 
raised by taxation having been once ascertained and enun- 
ciated by the supreme judicial authority of the State (as 
would seem to have been done in the United States), the 
instant, thereafter, that taxation essays to become any- 
thing but taxation — i. e., for an unquestionable public 
purpose; the instant that it is made an instrumentality 
for effecting any results other than such as are directly 
necessary or beneficial to the whole public, that instant it 
becomes inequitable and antagonistic to the very idea of a 
just government ; and the citizen whose person or property 
is thereby affected has at least a moral right to demand 
protection and redress. 

* " It is by facts and instances that the people are taught their 
Constitutions and their laws. Constitutions are framed; laws 
established; institutions built up; the processes of society go on, 
until at length, by some opposing, some competing, some contend- 
ing forces of the State, an individual is brought into the point 
of collision, and the clouds surcharged with the great force of 
the public welfare burst over his head." — Speech of Mr. Evarts 
for the Defence, in the Impeachment of President Johnson. 



CHAPTEE XIV. 

RULES OR MAXIMS ESSENTIAL TO AN ADMINISTRATION OF 
RIGHTFUL TAXATION UNDER A CONSTITUTIONAL OR FREE 
GOVERNMENT. 

PART II. 

In continuance of the discussion entered upon in the 
preceding chapter, as to whether under a constitutional 
and free government, and in virtue also of the natural 
and inalienable rights of the people governed, a state has 
a lawful right to levy and expend taxes in furtherance 
of private interests, more especially by way of bounties, 
the following additional points may be worthy of consid- 
eration : 

Probably no better exposition of the limitation on 
the exercise of the taxing power incumbent on a free 
government professing a regard for the rights of the peo- 
ple, and more especially on the Federal Government of 
the United States, under its Constitution, in respect to 
the granting of payment of bounties for the promotion of 
the private interests of any of its citizens, can be found 
than the following, accredited to Justice Thomas M. 
Cooley: 

" It is not in the power of the state, in my opinion, 
under the name of a bounty, or under any other cover or 
subterfuge, to furnish the capital to set private parties up 
in any kind of business, or to subsidize their business 
after they have entered upon it. A bounty law of which 
this is the real nature, is void, whatever may be the pre- 
tence on which it may be enacted. The right to hold out 
pecuniary inducements to the faithful performance of 
public duty in dangerous or responsible positions stands 
upon a different footing altogether; nor have I any occa- 
sion to question the right to pay rewards for the destruc- 
tion of wild beasts and other public pests, a provision of 

305 



306 THE THEORY AND PRACTICE OF TAXATION. 

this character being a mere police regulation. But the dis- 
crimination by the state between different classes of occu- 
pations, and the favouring of one at the expense of the 
rest, "whether that one be farming or banking, merchandis- 
ing or milling, printing or railroading, is not legitimate 
legislation, and is an invasion of that equality of right 
and privilege which is a maxim in state government. When 
the door is once open to it there is no line at which we can 
stop and say with confidence that thus far we may go with 
safety and propriety, but no further. 

" Every honest employment is honourable; it is bene- 
ficial to the public; it deserves encouragement. The more 
successful we can make it the more does it generally sub- 
serve the public good. But it is not the business of the 
state to make discriminations in favour of one class against 
another or in favour of one employment against another. 
The state can have no favourites. Its business is to pro- 
tect the industry of all, and give all the benefits of equal 
laws. It can not compel an unwilling minority to submit 
to taxation in order that it may keep upon its feet any 
business that can not stand alone." 

A brief historical retrospect is here pertinent to this 
subject. The payment of bounties from the proceeds of 
taxation, or rather of exaction, is a relic of the commercial 
methods of the middle ages. They were, however, re- 
garded as legitimate fiscal expedients for the encourage- 
ment of trade and domestic industries during the whole 
of the last (eighteenth) century; but since then, under the 
influence of a higher civilization and modern economic 
ideas, have been almost entirely discarded from the fiscal 
systems of the leading commercial nations until within a 
comparatively recent period, when they have been revived 
and made mainly applicable to the production and sale of 
a single one of the world's great commodities — namely, 
sugar ; * and the history of this experience constitutes 
a most interesting and instructive chapter in economic 
history. 

Although the practice of stimulating the production of 

* The policy of payment of bounties for the encouragement of 
shipping and of shipbuilding enterprise has also, to a limited ex- 
tent, been established, more especially by the three Governments 
of Germany, France, and Italy. 



BOUNTIES ON SUGAR. 307 

beet-root sugar in Europe through high protective duties 
on imports and export bounties, direct or indirect, dates 
back to the first quarter of the century, the present com- 
plicated and curious state of affairs is really due to a 
method of taxing beet sugar by Germany which was 
adopted in 1869. The idea involved in this method was, in 
brief, to collect an excise or internal-revenue tax on all 
sugar produced, and by allowing a drawback on what was 
exported, give a bounty on so much as was sold to the peo- 
ple of other countries. The other states of continental 
Europe, finding the markets of their own product of beet- 
root sugar everywhere supplanted by the German sugars, 
and their domestic manufacturers being thereby brought 
to the verge of ruin, made haste to follow the example of 
Germany, until the policy of Germany, France, Belgium, 
Holland, Austria, and Eussia seems to have been to stimu- 
late their domestic product of sugar to the greatest extent, 
and then enter into competition with each other to see 
which of them could sell cheapest to foreigners at the ex- 
pense of their own people. The general result is, that the 
great beet-sugar industry of Europe has been established 
and is now conducted on what may be regarded as an arti- 
ficial basis, and one not inaptly characterized as a most in- 
genious method for entailing money losses on the mass of 
the people of the countries above mentioned. 

The immediate sequence of this policy has been an 
enormous increase in the beet-sugar product on the Conti- 
nent of Europe— i. e., from 2,223,000 tons in 1885-^86 to 
nearly 5,000,000 (4,789,000) tons in 1895- 7 96— with such 
a reduction in price that the whole sugar industry of 
Europe is seriously depressed, with a general complaint on 
the part of producers that the amount received by them 
does not cover the cost of production. Under such a con- 
dition of affairs, the German Parliament (Eeichstag), in 
May, 1896, accepting a popular declaration that " sugar 
was the last and only agricultural product in which there 
remained any profit for the German farmer, and that what- 
ever skilful legislation could do to preserve and protect 
that industry should in justice to the suffering landowners 
be given a prompt and thorough trial/' passed an act in- 
creasing the bounty on the export of sugars to an extent 
assumed to be sufficient " to enable German exporters to 



308 THE THEORY AND PRACTICE OF TAXATION. 

compete against all comers in foreign markets "; advancing 
the import duty on sugars to a prohibitory degree ; and fix- 
ing an internal-revenue tax on sugars to such an extent as 
to yield a net income to the state in excess of its disburse- 
ments on account of bounties on exports. The effects of the 
new statute have now become apparent and ominous. The 
foreign sugar market has responded to the increased bounty 
export by a proportionate decline in price; and a move- 
ment soon found favour to petition the Eeichstag to make 
certain amendments in the existing statute so as to restrict 
instead of stimulating production, and to invite interna- 
tional negotiations for the gradual abolition of all export 
bounties, which have been proved to be simply a burden 
on the treasury, which pays them for the benefit of non- 
producing foreign countries. 

The present burden which the sugar-bounty system en- 
tails upon the taxpayers of Europe is estimated at about 
$25,000,000 per annum, while the excise tax on sugar in 
Germany, France, and Austria is said to amount to $100,- 
000,000 per annum. On the sugar consumed by the people 
of the continental nations of Europe which have adopted 
the bounty policy there is no bounty, but on the contrary 
an excise tax; the result of which legislation is to make 
exported sugars very cheap a"nd home consumption abnor- 
mally dear. This is demonstrated by reference to the sta- 
tistics of the comparative consumption of different coun- 
tries. Thus in England, whose policy since 1874 has been 
to give her people sugar free of taxation, the per capita 
consumption has risen from fifty-six pounds in that year to 
eighty-six pounds in 1896; while the saving to the British 
people from the reduction of the cost of this one item of 
their living has been estimated to be at least £6,000,000 
($30,000,000) per annum. The great reduction in the 
price of sugar has also given a remarkable impetus to the 
British industry of manufacturing sweets, in the form of 
confectionery, preserves, jams, marmalades, etc., which 
last to a considerable extent have undoubtedly supplanted 
the use of butter. The present annual average consumption 
of sugar in Germany is reported to be about twenty-seven 
pounds per capita. In France the declining consumption 
of sugar has been made the subject of recent debate in the 
Chamber of Deputies, where the question was pertinently 



ABUSE OF BOUNTIES. 309 

asked by one of the deputies (M. Mery) if the object of 
the existing governmental policy in respect to sugar " was 
mainly to produce it or to have and enjoy it." The Agri- 
cultural Society of France has also recently unanimously 
indorsed a demand of the French sugar makers and re- 
finers that the Government should increase the present 
bounty on the export of sugar to an extent equivalent to the 
combined or aggregate bounties allowed in Austria and 
Germany. 

So much, then, for nearly half a century's experience 
on the part of the leading continental nations of Europe 
in attempting to regulate the production, price, and con- 
sumption of sugar through a system of bounties.* 

Practical experience in respect to the employment of 
bounties also leads to a deduction, which may be almost 
regarded in the nature of a principle, that when bounties 
are employed for the promotion of some public good, the 
object sought eventually becomes subordinate to the op- 
portunity which an unnatural and unprincipled perversion 
of the bounty provisions affords for the promotion of pri- 
vate rather than public interests. The following illustra- 
tions, though somewhat comical in their nature, serve to 
sustain this proposition: 

In the early years of the present century the State 
of Connecticut, having in view the promotion of its agri- 
cultural interests, offered a premium on the destruction 
of the crow; to be paid on the production of the head of 
the bird to the proper authorities. Thereupon the sons 
of the farmers, desirous of earning a little money, then 
much more difficult to obtain than at present, diligently 
searched the woods for the nests of crows, from which at 
the proper time the eggs were transferred to sitting hens, 
by whom they were hatched and the resulting offspring 
brought up until their heads became available for pres- 
entation and procurement of the bounty. A summary of 
the general results of such experience would be somewhat 
as follows: First, a perversion of the legitimate industry 
of the hen; second, an elementary lesson for young per- 
sons in perpetrating frauds against the State; third, an 
impairment of the agency of a bird, whose habits have been 

* See my Recent Economic Changes, p. 296. 



310 THE THEORY AND PRACTICE OF TAXATION. 

proved by subsequent scientific investigations to be bene- 
ficial rather than detrimental to the interests of the 
farmers. Again, in the early history of one of the North- 
western States of the Federal Union a bounty was offered, 
at the request of the farmers, for the heads of little bur- 
rowing animals known as " gophers," which attracted little 
attention till the experience of several years showed that 
the disbursements of the State on this account had become 
abnormal and were rapidly increasing. Investigation then 
proved that the raising of gophers by citizens of the State 
for the procurement of bounties had become a regular 
industry. A like experience in British India is also worthy 
of note. Some years since the Government, with a view 
of arresting the mortality among its native population from 
the bites of poisonous serpents, offered a bounty on their 
proved destruction; when it was found that for the sake 
of obtaining the bounties the cultivation of the " cobra " 
and other like snakes had been actually entered upon. 

Third. The sphere of taxation should be limited to per- 
sons, property, and business exclusively within the territorial 
jurisdiction of the taxing power. It would seem to be in 
the nature of a self-evident proposition, although in fact 
it is by no means so regarded, that the power of every 
state or government to tax must be exclusively limited to 
subjects within its territory and legal jurisdiction. "All 
subjects" says Chief-Justice Marshall, in giving the opin- 
ion of the Supreme Court in the case of McCulloch vs. 
Maryland (4 Wheaton, 431), " over which the sovereign 
power of the state extends are objects of taxation; but those 
over which it does not extend are, on the soundest principles, 
exempt from taxation." And again : " The sovereign power 
of the state extends to everything which exists by its own 
authority or is introduced by its permission." " Every na- 
tion," says Wheaton, " possesses and exercises exclusive 
sovereignty and jurisdiction throughout the full extent of 
its territory. It follows, from this principle, that the laws 
of every state control, of right, all the real and personal 
property within its territory. The second general prin- 
ciple is, that no state can, by its laws, directly affect, bind, 
or regulate property beyond its own territory. This is a 
consequence of the first general principle; a different sys- 
tem, which would recognise in each state the power of 



TAXATION AND SOVEREIGNTY. 311 

regulating persons or things beyond its territory, would 
exclude the equality of rights among different states, and 
the exclusive sovereignty which belongs to each of them." 
(Wheaton's International Law, chap, ii, § 2; Fcelix, Traite 
du Droit International Prive, §§ 9 and 10.) And in a de- 
cision of more recent date (State Tax on Foreign-held 
Bonds, 15 Wallace, 306, 328), the United States Supreme 
Court said: " The power of taxation, however vast in its 
character and searching in its extent, is necessarily limited 
to subjects within the jurisdiction of the state. Property 
lying beyond the jurisdiction of the state is not a subject 
upon which her taxing power can be legitimately exercised. 
Indeed, it would seem that no adjudication should be ne- 
cessary to establish so obvious a proposition." 

The principle under consideration has also been made 
the subject of adjudication by the United States Supreme 
Court in a case of historic as well as of legal and economic 
interest. In September, 1814, the country being then at 
war with Great Britain, the town of Castine, in Maine, was 
captured by the British forces, and remained in their ex- 
clusive possession until after the ratification of peace in 
1815. During this period the British Government exer- 
cised all civil and military authority over the place, estab- 
lished a custom house and allowed merchandise to be im- 
ported, some of which remained in Castine after it was 
evacuated by the enemy. On the re-establishment of the 
authority of the United States, the American collector of 
customs for the district, claiming a right on the part of 
the United States to Federal duties on the goods in ques- 
tion, demanded payment of the same from the owners or 
importers; and, the claim being resisted, the case went 
up to the United States Supreme Court, which with com- 
plete unanimity gave judgment, through Justice Story, 
for the owners or importers in the following language: 

" We are all of the opinion that the claim for duties 
can not be sustained. By the conquest and military occu- 
pation of Castine, the enemy acquired that firm possession 
which enabled him to exercise the fullest rights of sov- 
ereignty over that place. The sovereignty of the United 
States was suspended, and its laws could no longer be 
enforced there, or be obligatory on the inhabitants who re- 
mained there and submitted to the conquerors. By the 



312 THE THEORY AND PRACTICE OF TAXATION. 

surrender the inhabitants passed under a temporary alle- 
giance to the British Government, and were bound by 
such laws and such only as it chose to impose. From the 
nature of the case, no other laws could be obligatory on 
them; for where there is no protection or allegiance, or sover- 
eignty, there can be no claim to obedience." 

Taxes, therefore, are necessarily the creation of each 
state, and no self-respecting Government ever permits any 
other Government to interfere with its tax laws or their 
execution,- and a toleration of such interference in any 
degree presupposes dependence, subjection, or absence of 
independence. An obvious co-relation of this proposition, 
and also a matter of fact, is that a violation of the tax 
or revenue laws of one country has never been regarded as 
an offence or crime in any other country; and the English 
courts have held that contracts to evade the customs laws 
of a foreign country are not illegal. Hence, also, offenders 
in this respect are never taken into account in extradition 
treaties between different nations and their governments. 
Some years ago a United States district attorney in New 
York procured through the Department of State at Wash- 
ington the extradition of a person from England on the 
charge of forgery. On his arraignment before a United 
States court it transpired that the offence committed was 
the manufacture and use of fraudulent invoices, to which 
forged or fictitious names had been attached, for the pur- 
pose of evading the payment of United States customs or 
taxes on certain imports; and that the intent of the prose- 
cution was punishment, not for forgery in the ordinary 
sense of the term, but for smuggling, for which latter 
offence there was no precedent that extradition had ever 
been granted by any country. The attention of the Brit- 
ish Government having been called to the case, a request 
was preferred by it to the authorities in Washington that 
the trial of the accused should be discontinued, on the 
ground that a fugitive from justice, when surrendered by 
a country in which he had sought refuge, should not be 
tried for any offence other than the one specified in the 
extradition demand, and for which extradition was 
granted. Compliance with the request being refused, al- 
though as a matter of fact the trial was discontinued, the 
British Government took occasion, when extradition was 



TAXATION OF FOREIGNERS. 313 

next demanded of her by the United States — which hap- 
pened to be the case of a former well-known citizen of 
Boston who had committed forgery in the sense that con- 
stitutes a crime in all countries — to refuse it, although the 
offender had in the first instance been arrested in Eng- 
land and was in custody; and for many years subsequent 
and for reasons above given there was no extradition in 
force between the United States and Great Britain and her 
colonies, with the result of making Canada an Alsatia, or 
place of safe refuge, for all criminals of the former 
country.* 

All, therefore, that any government can legitimately 
ask of another government in respect to taxation is, that 
its subjects or citizens residing in such foreign state shall 
not be there discriminated against because they are for- 
eigners; but shall be treated in exactly the same manner 
as the subjects or citizens of the taxing power and their 
property are treated — no better and no worse. If for- 
eigners feel aggrieved, they must first exhaust all the 
remedies against unjust taxation provided by the insti- 
tutions of the taxing country; as foreign importers, for 
example, aggrieved by rulings or appraisements at the 
custom houses of any country, must first appeal for redress 
to the courts of such country. A recent event of great 
economic and legal importance is also worthy of narration 
and consideration in this connection. 

A board of appraisers and assessors charged with the 
duty of assessing, for the purpose of taxation,, the property 
in Ohio of telegraph, telephone, and express companies, 
discharged the duties incumbent upon it — taking an ex- 
press company for example — in the following manner: 
First, by determining the value and liability to taxation 
of the real estate of the company situated in Ohio; second, 
the personal property, including moneys and credits, owned 
by the company in Ohio, and the value thereof; third, 
the gross receipts during the taxing year of the company 
in Ohio, from whatever sources derived. It was conceded 
that the returns made by the company to the above 
officials were correct, and that the aggregate value of the 

* These cases of Lawrence and Winslow are fully treated in 
Wharton's Digest of International Law, § 270. 
21 



314 THE THEORY AND PRACTICE OF TAXATION. 

items included in such returns liable to taxation in 1895 — 
the same as other like property in the State — was $42,065. 
The board of appraisers and assessors added, however, to 
this amount the sum of $491,030, making the aggregate 
of the tax liability of the express company $533,095; and 
based their action not on any belief or pretence that any 
considerable amount of real or personal property within 
the territorial jurisdiction of the State had been discov- 
ered which had hitherto escaped taxation, but that sources 
of reported value which were entirely outside of the terri- 
tory and beyond the jurisdiction of the State of Ohio — 
when they constituted a part of the value of the capital 
or franchise of a corporation located and established in 
some other State for the purpose of carrying on business, 
and that business " interstate commerce " entirely within 
the control of the Federal Government — might be added 
to the intrinsic value of property within the State; thereby 
assessing not only property within the State of Ohio, but 
a proportion also of all property situated without its ter- 
ritorial boundaries. The question involved was therefore 
the constitutionality of extra-territorial taxation; and the 
case, after consideration by State and United States Circuit 
Courts, was finally brought before the United States Su- 
preme Court. Here, notwithstanding the citation of nu- 
merous former opinions and judgments of the court wholly 
adverse to the constitutionality of the principle on which 
was based the assumption and action of the State of Ohio, 
the court by. a majority of one held to a contrary view; 
and gave judgment in support of the State assessments on 
the express company.* It is clear, therefore, that the 
State of Ohio has been justified, for the time being, in 
an attempt to tax something that it calls property, but 
which is neither tangible nor visible; that has no intrinsic 
or essentially inherent value; and which procedure, if gen- 
erally accepted and put in practice by other States, would 
antagonize all formerly accepted theories and legal de- 
cisions in respect to extra-territorial taxation, and ulti- 
mately destroy all interstate commerce between the sev- 
eral States of the Federal Union. 



* See the decision of the court in Adams Express Company VS. 
Ohio State Auditor, 165 U. S., 194. 



TAXATION AND PROTECTION. 315 

An Implied but Fundamental Eecipkocal of Taxa- 
tion. — Notwithstanding the absence of any warrant for 
assuming that there was ever any real or implied contract, 
whereby a State in its beginning or development agreed 
to give a certain amount of protection to life and property 
in return for an equivalent in money, goods, or services of 
its citizens — an assumption which has been characterized 
as the " commercial theory of taxation " * — it is neverthe- 
less true that the " co-relative " or " reciprocal " of taxa- 
tion is protection; or, in other words, according to the 
political theory of our governments, national and State, 
and in fact of every government claiming the title to be 
free, taxes may be legitimately assumed to be the com- 
pensation which persons and property pay the State for 
protection. This assumption, it is believed, has been in- 
dorsed and accepted by every writer of repute on economic 
subjects who has discussed taxation from the time of 
Montesquieu down to a very recent period; f and in the 



* " The right of a State to take the citizen's property must be 
put on higher ground if it is to stand on perfectly safe ground. 
Of course, such higher ground is not to be found in the pretence 
that the right in question is the simple right of might; that the 
ruling power, whether monarch or majority, is physically able 
to take and apply as it chooses all that the individuals ruled over 
called their own; and that because it can, it morally may, take 
whatever part it thinks fit. With simple ethics the leviers of 
taxes, whenever they are a distinct class, are wont to content 
themselves. But whatever countenance they have received from 
such moral philosophers as venerate successful force, the principle 
will hardly serve those who study the matter as taxpayers." — 
Theodore Bacon. 

t " The philosophy of our plan of voluntary political associa- 
tion is, that all individuals, and all the values within a com- 
munity, shall aggregate into one mass all the power which they 
separately contain, which sum total shall constitute a sovereignty 
of the whole. This sovereignty — the soul of the State, which can 
not be impaired and the State survive — reflects back upon its con- 
stituents, in detail, all that it has received from them. What it 
receives, and what it returns, is of two kinds, as to both source 
and object, viz., individual service to the Government, and pro- 
tection to the individual from it. Thus, in his individual capacity, 
a man is bound to perform military service, and the State, by the 
military arm, is bound to protect him from invasion. He is bound 
to do jury duty, and the authorities are bound, upon his demand, 
to provide him a jury. He is bound to aid the sheriff, and the 
sheriff is bound to execute process in his favour by posse comitatus, 



316 THE THEORY AND PRACTICE OF TAXATION. 

repeated instances in which this matter has come before 
the courts for adjudication, the highest judicial authorities 
have uniformly given judgment or expressed opinions to 
the same effect. In confirmation of these statements the 
following citations are submitted: 

Montesquieu, writing with the monarchical institutions 
of France mainly or solely in view, discusses this subject in 
his Spirit of Laws (book xxxi, chap, i), as follows: " The 
public revenues are a portion that each subject gives of 
his property, in order to secure or enjoy the remainder." 

" The right to tax an individual results from the gen- 
eral protection afforded to himself and his property." — 
Vattel, Law of Nations, booh i, chap. xx. 

" Property and law (i. e., government or the state) are 
born together and die together. Before laws were made, 
there was no property; take away laws, and property 
ceases." — Bentham, Theory of Legislation. 

" Where there is no protection," said Judge Story (in 
the case of the United States vs. Eice, 4 Wheaton, 276), 
" there can be no claim to allegiance or obedience." Again 
the same eminent authority (in the case of Miles vs. 
Duryea, Cranch, 481) thus strongly expresses himself: " It 
is an eternal principle of justice that jurisdiction can not 
be justly exercised by a State over property that is not 
within reach of its process — that is, property which it can 
not protect." 

" Taxes are a portion which each individual gives of 
his property, in order to secure and have the perfect enjoy- 
ment of the remainder. Governments are established for 
the protection of persons and property within the limits of 
the State, and taxes are levied to enable the government to 
afford and give such protection. They are the price and 

if necessary. These personal services correspond to those which 
in feudal times the mesne lord, holding a frank tenement, owed 
the lord paramount. They can not be compounded for, for their 
value consists in their being rendered in kind. Their performance 
is the only price which the citizen pays for his citizenship. The 
terms are not only consistent and harmonious with our general 
scheme of government, but are highly politic. To all political 
privileges we admit each one by virtue of his being a man, free 
born, and of lawful age ; we ask him nothing concerning his prop- 
erty, unless his property asks something from us." — Loicrey, Argu- 
ment, Neiv York Assembly, 1862. 



PROTECTION OF PERSONS AND PROPERTY. 31? 

consideration of the protection afforded." (Ingersol, J., 
Circuit Court of the United States, Duer vs. Small.) 

" There is nothing poetic about tax laws. When they 
find property, they claim a contribution for its protection." 
(Lowrie, Chief Justice, Tinley vs. The City, etc., 32 Penn., 
381.) 

The principle here involved is also clearly and suc- 
cinctly further expressed in the following citations: 

" ' Taxation ' is, in any view, taking private property 
for public use, and it can not be so taken without an 
equivalent, both as to the Government or the citizens. It 
is not competent to convert private property to public use 
by way of taxation, and without compensation, any more 
than by any other mode. 

" Taxation (if anything in the nature of principle is 
assumed as its basis) therefore implies that the government 
imposing it will return an equivalent. But to return an 
equivalent in the form that was taken, namely, money, 
would be stultification. The only equivalent that a gov- 
ernment can return, and the only one, in truth, that justi- 
fies taxation, is in the nature of a guarantee that the per- 
son, property, or business on which the tax is imposed shall 
have all the rights which the civilization of the State repre- 
sents, or, in other words, ' protection/ " — Redfield. 

" i If it were practicable to do so/ says Justice Cooley, 
c the taxes levied by any government ought to be appor- 
tioned among the people according to the benefit which 
each receives from the protection the government affords 
him. This is upon the assumption, never wholly true in 
point of fact, but sufTciently near the truth for the prac- 
tical operations of government, that the benefit received 
from the government is in proportion to the property 
held or the revenues enjoyed under its protection/ " — 
Cooley, on Taxation, pp. lJf-17. 

Notwithstanding this preponderance of opinion, argu- 
ment, and legal decisions in favour of the correlation of 
taxation and protection, the truth of this assumption has 
been called in question in recent years, and even wholly 
denied by some economic and legal authorities. Thus, in 
most of the States of the Federal Union (but not in other 
countries), sovereignty in respect to taxation is assumed, or 
enacted to embrace " goods, chattels, money, and effects, 



318 THE THEORY AND PRACTICE OP TAXATION. 

wherever they are; ships, public stocks and securities, stocks 
in turnpikes, bridges, and moneyed corporations, within or 
without the State "; and where the administrators of the 
law tax residents for personal property, even of a visible, 
tangible character, having a situs in another State or 
country; and, by another irreconcilable rule, tax non-resi- 
dents for all of their personal property having a situs 
within the State. : — Massachusetts Statutes. 

Such antagonism would seem to be wholly due to an 
inadequate comprehension of the subject. It is assumed, 
for example, that there can be no necessary reciprocity 
of the nature indicated between the State and the subjects 
of taxation, because, in the case of subjects — persons, 
property, and business — upon which no tax is levied, there 
can be no correlation, and therefore no claim whatever for 
protection; and in illustration and support of this proposi- 
tion it is pointed out that churches and other public insti- 
tutions, specifically exempt from taxation, need and re- 
ceive as much protection from the State as structures used 
for dwellings and stores, and that tramps, who have noth- 
ing to pay with, are equally entitled to invoke and use the 
power of the State for protection as those who are taxed 
for millions. " So also the business that is not taxed at all, 
it is said, can no more be plundered with impunity than 
that which is taxed the heaviest." * The error in all this 
reasoning is fundamental, and arises from a failure to 
comprehend that in every civilized state every person or 
thing is taxed, either directly or indirectly, by the diffu- 
sion of taxes, and that it is not possible to name anything 
in such a State that is exempt from taxation ; that the pri- 
mary purpose for which the State exists is to afford protec- 
tion to persons and property; that it — the State — practi- 
cally ceases to exist when it is unwilling or unable to afford 
such protection ; and that, even if willing, it could not pro- 
tect, except through the ability that comes to it in the 
possession of the power and the exercise of taxation. 

Fourth. Taxes should be reasonable, regular, and not 
arbitrary as respects method, time, and place of assessment 
and payment, and, above all, proportional. 



* The claim or argument in defence of extra-territorial taxa- 
tion will be more fully considered hereafter. 



CERTAINTY OF TAXATION. 319 

The justice and the necessity of these conditions as 
essentials of a true system of taxation ought to command 
universal assent without argument. Adam Smith held to 
the opinion, " founded," as he says, " on the experience of 
all nations, that the certainty of what each individual 
ought to pay is, in taxation, of so great importance that a 
very considerable degree of inequality is not near so great 
an evil as a small degree of uncertainty." The evil of 
uncertainty does not, however, often characterize the tax 
systems of the United States, except in the case of taxa- 
tion by the Federal Government of imports, when rates 
(customs) are sometimes held for considerable periods in 
abeyance by reason of political antagonisms of legislators. 
One of the most remarkable examples of this occurred 
during the months from December, 1893, to August, 1894, 
when the uncertainty as to the prospective rates on im- 
ported merchandise occasioned great stagnation of busi- 
ness in the United States, with inevitable great contingent 
losses. Another even more striking illustration of the 
evils of uncertainty in taxation is to be found in the re- 
cent (1897) proposition to subject merchandise, imported 
in strict conformity with established laws and rates at the 
time of importation, to the retroactive incidence of in- 
creased taxes, not certain but prospective in respect to 
rates, and not enacted or embodied in the form of statute 
laws. Such action is in the nature of an arbitrary fine .or 
penalty, and not taxation, and probably does not find a 
parallel in the history of any civilized nation, and would 
not now be tolerated in any of the most despotic govern- 
ments of Europe.* 

* A somewhat similar subterfuge was resorted to under the 
Tariff Act of July 24, 1897. The bill passed both Houses of Con- 
gress, and, going to the President, received his signature at six 
minutes past four of the afternoon of July 24th. The Treasury 
set up the claim that the new act became operative from the 
earliest moment of the day on which it received the signature 
of the President — namely, at twelve o'clock midnight of July 23, 
1897. This claim was based upon a general rule of law which 
does not permit fractions of a day to be considered. The word- 
ing of the act was in unmistakable terms, and the phrase " on 
and after the passage of this act," or " on and after the day when 
this act shall go into effect," left no doubt as to the meaning of 
the measure. An early case, decided in February, 1815 (Arnold 
vs. United States), involved a question of import duties arising 



320 THE THEORY AND PRACTICE OF TAXATION. 

The term proportional, which is largely used in con- 
stitutional provisions and in statutes relating to taxation, 
has, however, a meaning so much broader and of such 
greater significance than is generally attributed to it by 
law-makers and even law interpreters, that it is worth 
while to institute an inquiry and endeavour to understand 
clearly what it does mean. Scientifically considered, it 
means the making of the h~urden of taxation equal upon all 
subjects of immediate competition. This principle is one of 
the prime essentials of taxation, and when it is violated 
the act of taking, or the enforced contribution, is not 
entitled to be considered taxation, but becomes at once 

under a tariff act approved July 1, 1812, the importation being 
made on the same day. The act imposed an additional duty of 
one hundred per cent on all merchandise " which shall, from and 
after the passing of this act, be imported into the United States 
from any foreign port or place." The court ruled, through Justice 
Story, that " the statute was to take effect from its passage ; and 
it is a general rule that, when the computation is to be made from 
an act done, the day on which the act is done is to be included." 
No question was raised, however, as to the precise hour the act 
was signed by the President or when the cargo arrived. In a much 
later case (Louisville vs. Savings Bank, 104 United States, 469, 
475) Justice Harlan, after reviewing former decisions, admitted 
that there were established exceptions to the general rules, and 
" it can not be doubted that the court may, when substantial jus- 
tice requires it, ascertain the precise hour when a statute took 
effect by the approval of the Executive." As one of the latest 
decisions of the highest court this one is important, and, quoting 
from an Illinois case (Grosvenor vs. Magill, 37 111., 239), the court 
said: 

" It is true that for many purposes the law knows no divisions 
of a day; but whenever it becomes important to the ends of jus- 
tice, or in order to decide upon conflicting interests, the law will 
look into fractions of a day as readily as into the fractions of 
any other unit of time (2 Blackstone Com., 140, notes). The rule 
is purely one of convenience, which must give way whenever the 
rights of parties require it. There is no indivisible unity about 
a day which forbids us, in legal proceedings, to consider its com- 
ponent hours, any more than about a month, which restrains us 
from regarding its constituent days. The law is not made of such 
unreasonable and arbitrary rules." 

That such a ruling is consistent with sound reason and public 
policy has the support of the leading authorities in legal writing. 
" Common sense and common justice equally sustain the proposi- 
tion of allowing fractions of a dav whenever it will promote the 
purposes of substantial justice. The time of the approval of an 
act is a question of fact. The Constitution declares that to be 



PROPORTIONAL TAXATION. 321 

an arbitrary spoliation or confiscation. Thus, to illustrate: 
Suppose it were proposed to tax the stock in trade of red- 
haired men five per cent, and those of red-nosed men ten 
per cent; or, as was provided in the income-tax law enacted 
by the Congress of the United States of 1894, which ex- 
empted incomes below four thousand dollars per annum 
from taxation and taxed all above that sum two per cent; 
or to do as actually once was done in England, under an 
income-tax law enacted in 1691, tax Catholics at rates 
double those imposed on Protestants; it seems clear that 
such transactions could not involve any principle or be re- 
garded in any other light than the mere arbitrary and 
despotic exercise of power; or the making of the possession 
of a red nose or red hair, or the result of enterprise, skill, 
economy, or the fortuitous circumstance of birth or belief, 
the occasion for inflicting a penalty. Yet this was what 
substantially was done in the middle ages, when nobles 
were exempt from taxation because they were nobles, and 
the common people were taxed because they were villeins 
or bondmen; when Jews were assessed because they were 
not Christians, and Catholics because they were not Prot- 
estants. 

the time when the law takes effect. This act of approval can not 
look backward, and by relation or fiction make that a law at any 
antecedent period of the same day which was not so before the 
approval. The Constitution can not be abrogated by construction. 
The law prescribes a rule for the future, not for the past. And 
this in a republican government is a doctrine of vital importance 
to the security and protection ' of the citizen." — Potter's Dwarris 
on Statutes, p. 101. 

In an elaborate opinion the general appraisers concluded that 
the act of 1897 did not become operative until it had received the 
signature of the President, but this conclusion was so distasteful 
to the Government that the decision was " withheld for review." 
Upon being carried into the courts, the decisions were all against 
the Government, which reluctantly abandoned its absurd and 
unjust pretensions. Having before it the procedure of certain 
European countries, where power is conferred on the executive 
to raise or lower duties by decree, and to make a decree opera- 
tive at once, it thought to introduce the same procedure in the 
conduct of the United States Treasury in tariff matters. In the 
light of this attempt, and of the onerous, inquisitorial, and des- 
picable rules laid down as to the inspection of baggage of American 
citizens returning from abroad, it may be doubted if the customs 
policy of the country has ever been influenced so directly in favour 
of private greed and petty finance. 



322 THE THEORY AND PRACTICE OF TAXATION. 

It would seem to be clear, therefore, that a tax that 
is not levied proportionally or, what is the same thing, 
equally and uniformly upon all subjects in the same field 
of competition — as, for example, upon all persons engaged 
in the same business or profession, or upon all property of 
the same kind and all profit or income (less exemptions 
in the nature of charities) in the same ratio — is a dis- 
criminating exaction, without claim to either justice or 
equality, inasmuch as to the same extent that some are 
favoured by the discrimination others are inevitably plun- 
dered or crushed. It is also well to remember that when 
the term " uniformity " in respect to taxation is used, as 
it often is, in the place of " proportionality," the meaning 
is essentially the same; and that uniformity of taxation 
does not consist in the payment of the same amount by 
each taxpayer, but that the proportion of the value of each 
particular class or subject which each person pays in taxa- 
tion to the State shall be everywhere the same. 

In the soundings which have been made at great 
depths in the ocean for telegraphic or other purposes, the 
sounding line has not infrequently brought up from the 
bottom small chambered shells or other minute animals of 
exquisite organization and structure; and the question 
naturally arises, How can these minute organisms live and 
nourish under the enormous pressure that in some in- 
stances must be exerted upon them of at least three tons 
to the square inch? The explanation is to be found in 
the circumstance that the pressure is everywhere equal- 
ized, being as much from within outward as from without 
inward, and thus an equilibrium is maintained, under 
which development goes on and existence is made possible; 
and it is the preserving this equilibrium, this equalization 
of pressure, that constitutes the very essence of correct 
taxation.* 

Another point worthy of attention in connection with 
this subject is, that forms of taxation which were not 
authorized with any purpose of making them unequal in 
their incidence or burden, not infrequently (as is especially 
the case in the United States) become so by reason of ex- 

* Speech of Mr. Lowe, afterward Lord Sherbrooke, Chancellor 
of the British Exchequer. 



INEQUALITY OB' TAXATION. 323 

traneous circumstance; inasmuch as every tax which popu- 
lar sentiment, year after year, will not allow to be equally 
enforced, is, to the extent that it is enforced, a discrimi- 
nating tax of the most unjust and unequal character. Un- 
der the internal revenue laws of the United States as they 
existed not many years ago, there was a very striking ex- 
ample of this character in the case of the tax on matches, 
to which more particular reference will be made hereafter, 
and one worthy of notice still exists, in the case of the 
tax on negotiable securities (or instruments) — as railroad 
and other corporate bonds — which the laws of every State 
in the Federal Union make subject to taxation; inasmuch 
as it is notorious that such taxes are not paid by the great 
majority of the citizens who own such securities, but are 
paid as a rule by guardians, trustees, and executors, who 
are obliged to inventory them in probate offices; with 
the result that widows, orphans, and minors are plundered 
and crushed; while those who evade the tax, through the 
utter inability of the State to collect it, are rewarded for 
their evasion in an increased rate of interest. Uniformity 
or proportionality in taxation is, therefore, one of the 
fundamental principles of every free and just government; 
and the safety of all taxpayers against the grossest abuses 
demands that in taxing any class or locality the principle 
of equality of rate should be kept sacred and inviolate. 

The Constitution of the United States requires that 
" all duties, imposts, and excises shall be uniform through- 
out the United States "; and the question as to what con- 
stitutes uniformity of taxation under this provision has re- 
peatedly come before the courts — Federal and State — for 
the purpose of definition, and so has become invested with 
a degree of historical interest. A natural inference, at 
first thought, would be, that under this provision of the 
Federal Constitution all property subject to taxation must 
necessarily be taxed at the same rate or ratio — that is, if 
horses, wagons, and land are taxed, then the same per cent 
of value must be assessed upon the horses and wagons as 
upon the land; and if some eight hundred per cent is 
assessed upon distilled spirits — whisky — (as is the case in 
the United States at the present time) every other com- 
modity from which it was proposed to raise revenue ought 
to be taxed in the same proportion. In like manner under 



324 THE THEORY AND PRACTICE OF TAXATION. 

the customs, all imports — liquors and pig iron, for ex- 
ample — would have to be subjected to one rate of duty. 
This difficulty, so far as the Federal Government is con- 
cerned, has been obviated by an assumption, which the 
courts have sustained, that a tax " is uniform within the 
meaning of the constitutional requirement if it is made 
to bear the same percentage over all the United States " 
— that is, it must be uniform as regards any particular 
article in all places; that whisky or any other commodity, 
for example, shall not be subjected to Federal taxation at 
one rate in one State and at a different rate in another 
State, but that different articles may be subjected to dif- 
ferent rates, provided they are uniform as between differ- 
ent places and different States ; as it obviously " could not 
have been the intent of the framers of the Constitution 
that the Government in raising its revenues should not be 
allowed to discriminate in respect to articles which it de- 
sired to tax." * 

In the case of the several States of the Federal Union, 
to which the Federal constitutional requirement in re- 
spect to uniformity of taxation does not apply, the same 
question — i. e., as to what constitutes uniformity — has 
been also a troublesome one, but different in its manifesta- 
tion. The provisions relating to taxation in the Constitu- 
tions of these several States generally start with the idea, 
expressed or implied, that taxes must be uniform; and a 
strict construction of this language in a tax statute, 
operative in only one State, and where the Federal limita- 
tion of uniformity as respects place does not apply, might 
be construed as restraining the authorities of a State from 
imposing any different rate of taxation on the manufacture 
or sale of liquors and the manufacture and sale of other 
merchandise, or on the land and the business of the agri- 
culturist. These difficulties in the way of construction 
have, however, been largely obviated by recognising that 
when in the statute of a State the words " taxes must be 
uniform " are used, the word " uniform " does not mean, 
as in the Federal Constitution, uniformity as to " place," 
but uniformity " with regard to the subject of the tax "; 

* Lectures on the Constitution of the United States, Justice 
Miller, pp. 240, 241. 



EQUALITY OF BURDEN. 325 

an interpretation in full conformity with the principle 
before enunciated, that uniformity of taxation consists in 
the making of the burden of taxation equal upon all sub- 
jects which are in the same field or sphere of competition; 
or, as has been also expressed by Justice Samuel F. Miller, 
" different articles may be taxed at different amounts, 
provided the rate is uniform on the same class everywhere, 
with all people and at all times. Take, for instance, the 
case of a license: if everybody in any particular class is re- 
quired to pay a certain license — if all lawyers are taxed 
twenty-five dollars a year, all merchants one hundred dol- 
lars, and all saloonkeepers two hundred dollars — then the 
license taxation is uniform, because it imposes the same 
burdens upon every man of the same class, who comes 
within a circle of well-defined limits. . . . This interpre- 
tation/' he adds, " may be a little strained, but probably 
it has arisen from the necessity of enabling the Legisla- 
tures to levy taxes according to common sense, if not alto- 
gether with regard to strict uniformity." * 

The opinions expressed by the State courts of the 
United States when this question of uniformity of taxation 
has been practically brought before them, is indicated by 
reference to the following decisions: 

" The Constitution of the State of Pennsylvania pro- 
vides (Article IX, section 1) that ' all taxes shall be uni- 
form upon the same class of subjects within the territorial 
limits of the authority levying the tax, and shall be levied 
and collected under general laws.' In June, 1885, an act 
was passed by the Legislature imposing a tax of three mills 
on the dollar on mortgages, moneys loaned or invested in 
other States, money capital in the hands of individual citi- 
zens, and other classes of property. The act did not extend 
to corporations, which were taxed at a similar, in some 
cases at a higher rate, under a statute of 1879. The act 
of 1885 was opposed on the ground that it violated the 
constitutional rule of uniformity, but it was declared valid 
by the Supreme Court of the State, which held that sub- 
stantial uniformity had been obtained. 

" A decision in New Jersey turned upon a constitu- 
tional provision that f property shall be assessed for taxes 

* Miller, ibid., pp. 241, 242. 



326 THE THEORY AND PRACTICE OF TAXATION. 

under general laws and by uniform rules, according to its 
true value/ In 1884 the Legislature of the State passed 
an ' act for the taxation of railroads and canals/ which 
imposed a tax upon the lands and tangible property used 
by railroad and canal companies and their franchises, and 
touching no other property. The constitutionality of this 
law was questioned by most of the leading companies, but 
was affirmed by the State Court of Errors and Appeals, 
which held that as the law was a general one, framed in 
general terms and restricted to no locality, it operated 
equally upon a whole class of property, whose character- 
istics enabled it to be dealt with separately. The court 
further declared, that as a previous act had secured the 
companies against being required to pay more than their 
full share of tax, a substantial uniformity was thus se- 
cured." 

These and other like decisions of the State courts of 
the United States show that in order to sustain a tax law 
under the requirement of generality or uniformity it is 
not necessary that all property should be taxed, and that 
a State has the right to select property for taxation at its 
discretion. Of course, discrimination may result from the 
exercise by the State of the power of dividing the objects 
of taxation into classes, but while persons of the same 
class and property of the same kind are subjected to an 
equal burden, the constitutional requirements as to uni- 
formity seem to be satisfied. 

The fourteenth amendment of the Constitution of the 
United States, which prohibits any State from depriving 
any person of property " without due process of law," is 
also in conformity with the principle enunciated in the 
above citations; for taxation without jurisdiction, and 
therefore without the possibility of the correlative return 
of any protection as compensation, would obviously be an 
arbitrary exaction and not due process of law. But if 
property is otherwise (than by taxation) taken by the 
Government (as by the so-called law of " eminent do- 
main"), full and fair pecuniary return must be made for 
its value. This is a principle as old at least as constitu- 
tional government, and is so important that it is incorpo- 
rated in the fundamental law of every State in the Federal 
Union. Article V of the Constitution of the United States 



TAXATION AND MORALITY. 327 

also provides that private property shall not be taken for 
public use without due compensation. It is clear, there- 
fore, that there must be a line between the taking of 
private property for public use by the law of eminent do- 
main and by taxation. But how can that line be drawn 
except by the rule that rightful taxation means uniformity 
of burden on competing vocations and competing property? 
The following decision by the Supreme Court of New Jer- 
sey is clearly in conformity with this conclusion: " A tax," 
it said, " upon the persons or property of A, B, and C indi- 
vidually, whether designated by name or in any other way, 
which is in excess of an equal apportionment among the 
persons or property of the class of persons or kind of prop- 
erty subject to taxation, is, to the extent of such excess, the 
taking of private property for a public use without com- 
pensation. The process is one of confiscation and not taxa- 
tion." (Township Committee of Eeading, 35 N". J., p. 
66, 1872.) 

Fifth. Taxation should not be employed as an agency 
or for the purpose of enforcing morality, or as an instru- 
mentality for correction or punishment. 

The punitive or moral idea has probably always en- 
tered to some extent as an element in all those taxes 
which have been levied on luxuries, and more especially on 
all those forms of luxury which are regarded as frivolous 
or as mere insignia of wealth and title, such as hair powder, 
wigs, coats of arms, carriages, etc. But when a govern- 
ment assumes to inquire what are the articles the con- 
sumption of which is prejudicial to the interests and well- 
being of its people, and then embodies the results of such 
inquiries into its measures of revenue; so that while pro- 
viding means for the support of the state it also prescribes 
how the citizen ought to live, dress, eat, or drink, the re- 
sult is always ineffectual for purposes of revenue, and far 
more so for the promotion of morality. Examples illus- 
trative and confirmatory of these conclusions are so nu- 
merous as to make a selection of them not a little difficult. 
The following have been cited by the late Sir Morton 
Peto: "A tax on dice in Great Britain, repealed in 1862, 
had the ludicrous result of producing for many years a 
revenue of five shillings per annum from a license of thirty 
to forty pounds a year on the business of manufacturing 



328 THE THEORY AND PRACTICE OF TAXATION. 

them. Another provision of law was that every person 
having dice unstamped by the revenue officials in his pos- 
session was liable to the penalty of five pounds for each 
pair! But stamped dice could not be obtained. Every 
one who wanted dice, even cabinet ministers and revenue 
officials, purchased square pieces of ivory for a few pence 
and marked them for themselves. As regards packs of 
cards, the regulations imposed by a number of complicated 
acts of Parliament were so stringent that legally cards 
could scarcely be made or sold. Nevertheless, for many 
years cards were hawked about the streets unstamped and 
without a license; and the manufacture of cards for ex- 
portation was so flourishing that nearly half a million packs 
were estimated to be surreptitiously made for exportation 
at the time the obnoxious taxes were repealed." 

Sixth. No tax should be levied the character and extent 
of which offer, as human nature is generally constituted, a 
greater inducement to the taxpayer to evade rather than pay. 

The justification and wisdom of the above maxim find 
support in a lesser degree from argument than from ex- 
perience, although the deductions from abstract reasoning 
ought alone to constitute its sufficient indorsement. It 
has been pointed out by Herbert Spencer that ideal men 
are possible only in an ideal state; and, conversely, that a 
perfect social state is possible only when every unit has 
achieved perfection. As this condition has not been at- 
tained, and until the " millennium " arrives is not likely 
to be, the inference is legitimate that a large proportion of 
mankind are not " decently honest," inasmuch as in every 
variety of business where opportunity for the perpetration 
of fraud exists, much labour is expended in guarding 
against dishonesty. This is specially exemplified in the 
case of railroads, " where tickets have to be dated, punched, 
and carefully collected to prevent their being used again 
by the masses." 

But it is in matters of taxation that the largest amount 
of irrefutable evidence is to be found in support of the 
above maxim. Thus in the case of smuggling or the eva- 
sion of duties on imports, the experience of all govern- 
ments and of almost all countries is to the effect that 
when sufficient inducement in the way of gain from a 
violation of the law is offered, such statute can not be 



UNMORAL TAXATION. 329 

executed even when penalties as severe as death have been 
made contingent on individual arrest and conviction. But 
it has been reserved for that nation whose people claim 
to be the most law-abiding and intelligent, to furnish the 
most confirmatory evidence on this subject — namely, the 
United States — the Congress of which in 1865 imposed a 
tax on distilled spirits amounting to more than fifteen 
hundred per cent on the then average prime cost of pro- 
duction. The result was, that the Government was only 
able in 1868 to collect the tax on less than seven million 
gallons out of an annual product of certainly not less than 
fifty million gallons; which last, sold as it undoubtedly was 
at the current market price (tax included), left to the 
credit of popular corruption at least $80,000,000. 

The United States is confessedly one of the most pow- 
erful of nations and governments, but its entire military 
force can not crush the illicit traffic in refined opium, un- 
der a temptation of the realization of six dollars contin- 
gent on every pound of this commodity that is successfully 
smuggled into the country. 



22 



CHAPTEK XV. 

NOMENCLATURE AND FORMS OF TAXATION. 

PART I. 

The most simple form of taxation is a poll or capitation 
tax. Both terms may be regarded as identical in use and 
meaning, but the former is probably more frequently used 
in tax treatises and discussions. 

What is a Poll Tax? — In a strictly economic sense 
the essential requisite of a " poll " or " head " tax is that 
it be laid on all polls or heads, and be unvarying in 
amount. A varying poll tax would be an arbitrary exac- 
tion, and would not be sustained for a moment as a proper 
exercise of the right of taxation, if laid without reference 
to a man's ownership of property. So soon, however, as the 
amount of the tax exacted is made dependent upon the 
amount of the property owned, the tax ceases to be a 
varying poll tax, and becomes a tax on the property itself. 
The popular idea of a poll tax in the United States is an 
annual tax, small in amount, uniform as respects rate, and 
applicable only to adult male persons. Such conceptions 
are not, however, in accord with historical experience, 
which is to the effect that uniformity in assessment has 
never been an essential or even usual feature of this form of 
taxation, but as a rule the tax has been intentionally rated 
to the person assessed according to his rank and station 
and supposed property. The " poll " or " capitation " tax 
of history has, therefore, been rather an " income * J than a 
per capita tax; and the poll tax of the United States finds 
few precedents in history. Under the Byzantine Empire 
a so-called universal poll tax was substituted in lieu of 
almost all the tithes, customs, and excises which had before 
been relied on for revenue; and this substitution and its 
330 



POLL OR HEAD TAX. 331 

influence was regarded by Hume as one of the chief causes 
of the decadence of the Eoman state.* 

The first so-called poll tax in England was granted in 
1377, and from that date down to the time of Queen Anne 
was an important source of revenue, and, not being uni- 
form, except in its incidence per capita, gave rise to great 
popular dissatisfaction, both by reason of its amount and 
inequality, and also by the inquisitorial methods employed 
for its assessment and collection. At first (1377) the rate 
was fourpence on every head, male and female, above four- 
teen years of age. Subsequently, under the reign of 
Kichard II, in order to avoid the unfairness of subjecting 
all — rich and poor, noble and serf — to such a uniform 
tax, a more equitable system was introduced, the taxpayers 
being classified by reference to rank, condition of life, and 
property, the rate ranging from six pounds thirteen shil- 
lings for dukes and archbishops, to two pounds for barons 
and knights, and three shillings fourpence on those of 
" least estate." The retention of the former uniform rate 
of fourpence on all married labourers and upon all single 
men and women above fourteen years of age, who were 
presumed to be without estate, was, however, a cause of 
great dissatisfaction among the masses, and the attempt 
to collect it undoubtedly constituted the prime cause of 
the famous "Wat Tyler rebellion" of 1381. In the case 
of the last poll tax authorized in England under Queen 
Anne a like attempt at classifying persons was continued; 
the rate commencing at one shilling per annum on all 
persons worth more than fifty pounds, and rising to ten 
pounds for peers of the realm, both spiritual and temporal. 
One curious provision of this final enactment was, that in 
all cases Catholics were to pay double the rate imposed on 
Protestants. Bachelors and widowers without children 
were also subjected to special rates. Some writer has re- 
marked that such exactions could only have been designed 
and authorized by a government of misanthropes; for if 
one with a view of escaping them abandoned single blessed- 
ness, he only involved himself in greater difficulties; for 
there was a tax upon marriages, a tax upon births, and, 
if the health of the victim broke down under these ex- 

* See ante, p. 96. 



332 THE THEORY AND PRACTICE OF TAXATION. 

actions, a sum varying from three to thirty 'florins, accord- 
ing to his station, had to be paid before his sorrowing 
relatives could bury him. These taxes on marriages were 
enforced in England from 1695 to 1705, and during the 
first five years of their continuance yielded an average 
annual revenue of about two hundred and fifty thousand 
dollars. It was noted that their continuance had the un- 
desirable effect of increasing the number of marriages by 
irresponsible persons, and in a manner devoid of all so- 
lemnity. The rates imposed in England as late as 1706 
on bachelors and widowers contracting marriage varied 
according to the class in life to which they belonged; from 
thirty pounds to twenty-five pounds on the elder sons of 
the higher orders of nobility to twelve shillings on per- 
sons possessed of an income of fifty pounds per annum. 

Within a very recent period a petition, numerously 
signed, has been presented to the French Chamber of 
Deputies asking that a special tax on bachelors be estab- 
lished in France, and recalls the fact that the French 
revolutionary Convention of 1789, and some of the old 
republics, established such a tax. The petition further 
stated that the number of bachelors in Paris is nearly half 
a million, while the number of married men is not more 
than 379,000; and "that such a tax ought to be doubly 
welcome in France: first, because it will increase the de- 
clining population of the state by inducing bachelors to 
marry; and, secondly, because it will help to make up a 
growing deficiency in the national budget." In Switzer- 
land, in the assessment of an income tax and taxes on 
dwelling houses, certain deductions allowed to married 
persons with families are not allowed to bachelors or child- 
less married people. 

Legislation looking to the taxation of bachelors has 
also been seriously proposed of late in several of the States 
of the Federal Union. In Illinois, for example, a bill has 
been introduced in its Legislature imposing a uniform tax 
on all single men, sound in mind and body, above thirty- 
two years, who are not able to show that they have pro- 
posed marriage three times — and been rejected. The pro- 
ceeds of the tax are to go toward establishing a home for 
worthy and indigent single women above the age of thirty- 
eight. 



COLONIAL POLL TAXES. 333 

A Missouri bill makes the tax progressive, increasing by 
successive increments as the bachelor persists in his state 
of single blessedness. 

In modern times (1848) an English Governor of Ceylon 
— Lord Torrington — undertook to repeat the experience 
of his countrymen of near five centuries before, by im- 
posing a poll tax of three shillings per annum, or one 
week's labour, valued at three shillings, from every man, 
rich or poor, in the colony. This exaction, in point of in- 
equality, was worse than the poll tax of Wat Tyler's time, 
inasmuch as it made the average income of the poorest 
labourer the standard according to which the rate of taxa- 
tion was to be established for all. There was also another 
curious feature connected with this experience. The Cin- 
ghalese priesthood were held liable to pay this tax, either 
in money or a week's work, when their religion required 
that they must neither perform work nor possess property. 
The result was a revolt attended with much bloodshed, an 
abandonment of the tax, and the recall of the governor. 

In one of the states of Central America a poll tax was 
recently required to be paid monthly; all adult male in- 
habitants of the several towns and cities being obliged to 
present themselves at the municipal treasuries and pay 
their dues in person. 

In the colonial period of our history the poll tax was 
enacted by nearly all the North American colonies at one 
time or another. In Virginia and Maryland it was for a 
long time the only direct tax; and in the latter State it 
was imposed upon all free men and free women, and upon 
all free children over twelve years of age; and was rendered 
particularly odious and burdensome from the circumstance 
that its payment was required in tobacco, a given number 
of pounds to the head, the value of which commodity was 
not constant, but varied with supply, which at times was 
intentionally restricted, with the intent of augmenting its 
market price. There was, however, another side to this 
experience. The poll tax in the two States named was 
almost a measure of necessity. Land was of small value, 
for there was in the new colonies little distinction between 
improved and unimproved lands. Slaves were not taxable 
as personal estate, but belonged to the land and figured 
as real property; and the personal estates of the planters 



334 THE THEORY AND PRACTICE OF TAXATION. 

were comparatively small. Polls were therefore the most 
available measure of taxation, and tobacco was the cur- 
rency of the day. All bills and charges were made out in 
so many pounds of tobacco; all lawyers' and court fees were 
so determined; the parish and county levies were fixed in 
weights of tobacco; and the minister drew as his salary so 
many pounds of tobacco from each parishioner, without 
respect to the market value of the crop. It accordingly 
happened that a poll levy might be excessive one year 
and nominal the next; with lawyers, ministers, and clerks 
rejoicing in abundant means one season and reduced to 
starvation point the next. Unequal, in proportion to 
wealth of the payer, as such a poll tax was, its inequality 
was furthermore greatly aggravated by fluctuations in the 
exchangeable value of the medium in which it was payable. 

During the colonial period also, in North ximerica, 
men's persons were included in the schedules of property 
made in reference to taxation; and instead of having a 
fixed sum, as was subsequently the rule in assessing a poll 
tax, the value of the poll was rated according to the earn- 
ing capacity of the individual; and if he was old and in- 
firm, or in any way disabled, the value of the poll was 
placed at a small amount. 

Possibly by reason of English and American colonial 
experiences, and perhaps from an infiltration as it were, 
down through the ages, of the fact that in Greece and 
Eome the poll tax was exacted only of the people of subju- 
gated provinces, and was therefore regarded as a mark of 
inferiority or slavery, this tax in modern times has not 
been in accord with public sentiment, and in most coun- 
tries has now been abandoned. The last poll tax in Eng- 
land was enacted in 1689. Like all its predecessors, it was 
always unpopular and was regarded as unsuited to the peo- 
ple of England. It was repealed in 1698, and " henceforth 
this form of tax passed into the list of taxes tried and 
never again to be imposed in England. What minister," 
said Henry Fox in 1748, " would presume again to suggest 
the hated hearth money of the Stuarts, or the poll taxes 
of the reign of William III ? » * 

In the United States the poll tax formed, in 1895, a 

* Dowell, Taxation in England, vol. ii, p. 49. 



OPPOSITION TO POLL TAXES. 335 

part of the tax system of twenty-six of the States and Ter- 
ritories, and was not recognised in twenty others, and in 
some of the latter its levy is prohibited by constitutional 
provisions. In New York a general law for the incorpora- 
tion of villages confers upon its trustees the power to raise 
money by levying a poll tax. 

From a theoretical or purely economic point of view the 
present popular opposition and adverse sentiment to the 
poll tax in the United States do not seem to be warranted 
by any very good reasons. The arguments made use of by 
those opposed to its continuance are not derived from old- 
time precedents, or warranted by the experience of foreign 
countries, inasmuch as its assessment in the States of the 
Federal Union has always been inconsiderable in amount, 
and has rarely involved in its collection any inquisitorial 
or arbitrary measures. The one most deserving of attention 
has been, that it practically imposed a property qualification 
upon the right of suffrage by making its payment a pre- 
requisite to the act of voting, a money payment of even so 
small a sum as two dollars per annum in Massachusetts 
and one dollar in Connecticut being regarded in that light. 
But in answer to this it may be said that paupers are dis- 
franchised not because they are vicious or illiterate, but, 
because of their inability to support themselves or aid in 
supporting the State, it is held that they ought not to be 
allowed a voice in the government of the State. To be con- 
sistent, therefore, the advocates of the abolition of the 
poll tax as administered in New England ought also to 
connect with it — i. e., its abolition — an extension of suf- 
frage to the inmates of poorhouses who, otherwise quali- 
fied for its exercise, are now debarred from it exclusively 
by a lack of property qualification. On the other hand, 
a leading argument in favour of its continuance is that the 
majority of citizens who pay no direct State taxes upon 
property of any kind, but who are self-supporting and not 
paupers, ought not to be exempt from directly contribut- 
ing to the support of the government, and this argument 
may be amplified and illustrated as follows : Thus, there 
is no citizen, be he ever so humble, who is not vitally in- 
terested in the preservation and welfare of the civil society 
of which he is a member ; and it is of the first importance, 
more especially as the tendency of the age seems to be 



336 THE THEORY AND PRACTICE OF TAXATION. 

antagonistic, that each member of society should be en- 
couraged to realize at all times his personal interest in 
the well-being of the State. To the rich man society comes 
and exacts a contribution in some proportion to his means, 
and as a consequence he has inducements to directly in- 
terest himself in the fiscal management of the govern- 
ment. To the poor man, who is otherwise rarely directly 
confronted with the tax gatherer, society comes also, and, 
in common with all citizens of a certain age, asks a very 
small annual contribution for the support of the State, 
because each citizen is interested in its existence and wel- 
fare, has a measure of responsibility resting upon him, 
and should be made to realize that responsibility. In the 
fact, therefore, that the poll tax touches directly every 
citizen and is an effective agency for awakening him to 
a sense of his political duties and responsibilities, and so 
better qualifies him for the exercise of the right of suf- 
frage, is to be found the true reason for the incorporation 
of a small annual poll tax into every correct system of State 
taxation. 

As has already been pointed out, a poll tax, having re- 
gard solely to the person and not to his property, is the 
only tax to which the term personal can be rightfully 
applied. It is the essence also of every free and just gov- 
ernment that every person — the most humble as well as 
the most exalted — is equal before the law, and has a right 
to invoke the sovereignty of the State in all its fulness 
for the protection of his person. Keeping these two 
points in view, it would further appear that a poll tax 
assessed equally upon all citizens, and free from all dis- 
crimination, represents the most perfect equality of service, 
and is the only tax which a citizen can pay which can be 
regarded in the light of a reciprocal for the service which 
the State renders to him in protecting his person, all other 
taxes being in respect to property or business. 

As the Constitution of the United States also excludes 
from representation " Indians not taxed," it would seem 
to imply that its authors regarded the exercise of suffrage 
by a citizen that was not a pauper and paid no direct tax, 
as an anomaly not likely to occur under a government 
founded upon equal public rights and responsibilities, and 
also that a citizen who did not pay any direct tax to the 



SUFFRAGE AND POLL TAXES. 337 

State was not likely to have any more correct idea or 
measure of his true relation to the State than a wild 
Indian. 

If, however, public sentiment in any community is so 
adverse to the levy of moderate poll taxes that their col- 
lection is not and can not be enforced with any degree of 
uniformity and equality, as is reported to be the case in 
many States, then the advisability of their abandonment 
can not well be questioned, for the want of respect for all 
law, which always results from the maintenance upon the 
statute-book of any law which a community will not re- 
gard or permit to be enforced, is an evil that far outweighs 
any possible good that can come from its continuance. Fur- 
thermore, the statement is probably warranted that in no 
instance in history has it been possible to enforce a perma- 
nent tax against which by common consent the public has 
revolted.* 

In considering the feasibility of its continuance it 
should not be overlooked that the tax upon property can be 
collected because the State holds a confiscatory power over 
the property to the extent of the tax. But the tax upon the 
non-property-holding polls can not be collected except 
through the consent of the assessed person, unless resort 
is had to the old law of imprisonment until payment is 
made — a remedy not likely to find favour. 

The recent experiences of Massachusetts and Pennsyl- 
vania are especially worthy of note in this connection. The 
Constitution of Massachusetts, adopted during the Eevolu- 
tion, limited the suffrage to " every male inhabitant of 
twenty-one years of age and upward, having a freehold 
estate within the Commonwealth of the annual income of 
three pounds, or any estate of the value of sixty pounds." 
This restriction was abolished in 1821, but payment of a 
poll tax was still required before a man could vote. In 
recent years, however, this form of taxation has become 
so unpopular in this State, mainly by reason of a general 
belief that politicians, without distinction of party, were 
in the habit of collecting and disbursing large sums for 



* In illustration of this, attention may be called to an exposi- 
tion of the reasons why the California tax on mortgages haa been 
inoperative. — Plehn, in the Tale Review, March, 1899. 



338 THE THEORY AND PRACTICE OF TAXATION. 

the purpose of influencing or bribing voters by payment 
of their poll taxes, that in 1891 an amendment to the Con- 
stitution of the State was adopted which, while retaining 
the previous obligation of the payment of an annual poll 
tax, abolished such payment as a prerequisite for voting. 
The result was that before the adoption of this amendment 
from fifty-two to fifty-nine per cent of the poll tax due in 
the city of Boston was collected year by year; but since 
then the percentage of collection has fallen below forty- 
four per cent. Many of the city's own employees figure 
among the delinquents, and it has been found necessary 
to place hundreds of poll bills in the hands of the city 
treasurer for the deduction of the amount due from their 
wages. Leaving out the persons who can not pay without 
great sacrifice, it is stated that Boston is still losing above 
one hundred thousand dollars yearly in revenue from fail- 
ure to collect the taxes upon polls that can and should 
pay. And this, in a modified form, is probably the situ- 
ation throughout the State of Massachusetts. 

In Pennsylvania the State Constitution makes the pay- 
ment of a State or county tax, at least one month before 
election, a prerequisite to the exercise of suffrage; and as 
the poll tax involves the smallest amount of tax that a citi- 
zen could pay, it was expected that almost every man would 
pay it. But, in point of fact, it was found that thousands 
of citizens neglected to do so, and the political campaign 
committees, irrespective of party, recognising this fact, 
have adopted the policy of furnishing voters whom they 
desired to influence with receipts for the payment of their 
poll taxes; and this practice has attained to such magni- 
tude in recent years, that the two leading party organiza- 
tions in the city of Philadelphia alone purchased in the 
year 1894 over ninety-five thousand such receipts. Ob- 
viously this is a form of bribery which is forbidden by the 
spirit if not by the letter of the law; and to meet such a 
situation of affairs the Legislature of Pennsylvania has re- 
cently (1897) enacted a law forbidding the payment of a 
poll tax by any other person than the elector against whom 
such tax is assessed.* 

* During the American colonial period some attempts were made 
to compel the exercise of suffrage by imposing a fine on citizens 



ABUSE OF TAX RECEIPTS. 339 

Neither of the judicial authorities above referred to 
seem to have grasped the great principle essential to the 
continuance of every truly free state — that the power of 
taxation should not be invoked for police purposes, but be 
strictly limited to the raising of revenue to meet legitimate 
state expenditures. 

" The man who will not buy a tax receipt, but expects 
his party to purchase it for him, is a bad citizen. He is, 
in effect, a person who is bribed, and who holds the value 
of his vote at a very small sum." — Philadelphia Times. 

The antagonism between the white and coloured races 
of the Southern States, mainly contingent on the former 
toleration of slavery, still continues to a large degree, 
although both races, by amendments to the Federal Con- 
stitution, have been placed on terms of full legal right and 

neglecting to vote at regular elections; the fine imposed in Mary- 
land on citizens in default of such action having been one hun- 
dred pounds of tobacco. But since the adoption of the Federal 
Constitution no legislation of like character is believed to have 
taken place in any of the States until 1889, when Kansas City 
adopted a charter provision imposing a tax of two dollars and a 
half on each citizen who should fail to vote at a general election. 
This provision coming up for review before the State courts of 
Missouri, was affirmed in the first instance by a Superior Court 
judge, who took the ground that "in the enlightenment of the 
present age it is in the power of the State to compel its voters 
to exercise the election franchise, and if the State can do so the 
city is invested with the same power." After enumerating many 
things of an arbitrary nature that are done to maintain good 
municipal government, the judge said that he could see no legal 
objection to the use of the taxing power for the purpose of secur- 
ing a full and perfect expression of public sentiment and the elec- 
tion of competent and worthy men to public offices. The position 
was an advanced one, he admitted, but not an unreasonable one, 
in view of the fact that " the highest type of government is at- 
tained when every voter casts his vote, and that vote is counted 
just as it is cast." On an appeal to the Supreme Court of the 
State, the provision was, however, declared unconstitutional, the 
language of the decision being as follows: "Taxes may be levied," 
it said, " in money or in services having a money value to the 
public, and he who pays in money does not necessarily have to 
pay more or less than he who pays in services, and vice verm, and 
it is upon this principle that these taxes are upheld; but who can 
estimate the money value to the public of a vote? It is degrading 
to the franchise to associate it with such an idea. The ballot of 
the humblest in the land may mould the destiny of the nation 
for ages." 



340 THE THEORY AND PRACTICE OF TAXATION. 

equality. In no one respect does this antagonism more 
persistently manifest itself than in opposition on the part 
of the white citizen voters to the exercise of free and con- 
current suffrage by the negro citizens. Yet, in view of 
the restraints imposed by the Federal Constitution in re- 
spect to political or legal discriminations against the negro 
race, any change in the way of relief from the situation 
by State enactment has been regarded as impracticable. 
A recent constitutional convention of the State of Missis- 
sippi seems, however, to have at last most ingeniously solved 
this difficult political problem, by enacting that every citi- 
zen (white or black) of established age shall pay a poll 
tax, the non-payment of which shall exclude him from 
voting; and the collection of the tax out of exempt or 
non-taxable property — i. e., the possessions mainly of the 
poorer classes — was also denied. The intent of this ^pro- 
vision was therefore manifestly not to raise revenue, but 
to exclude negroes from voting by reason of non-payment 
of the poll tax; and by a like covert purpose the com- 
mission of a list of petty crimes which white men do not 
generally commit, such as thievery, arson, and obtaining 
money under false pretences, was also made a disquali- 
fication of voting ; while robbery, murder, and other robust 
crimes which are practised chiefly by white men were not 
included. 

" Within the field of permissible action under the 
limitations of the Federal Constitution, the Mississippi 
convention swept the circle of expedients to obstruct the 
exercise of the franchise for the negro race." — Ratlijf vs. 
Beale, Mississippi Reports. 

Of other terms employed to indicate different forms or 
methods of taxation, and a clear understanding of the 
meaning of which is essential to any correct discussion of 
the subject, the following are the most important : 

Direct and Indirect Taxes. — Taxes are generally 
characterized or classified as being either direct or indirect; 
but these terms, although in common use, are somewhat in- 
definite, owing to the inability of economists to agree as 
to their exact meaning; while in the United States this 
indefiniteness has been increased by the circumstance that 
its Supreme Federal Court has felt compelled by the lan- 
guage of the Federal Constitution to assign to the term 



DIRECT AND INDIRECT TAXES. 341 

" direct," as applicable to taxation, a " legal " rather than 
an economic definition. 

In a general sense the term direct is applied to those 
taxes which are demanded from the particular persons 
who it is intended or desired shall pay them; and indirect 
to those which are demanded from a person with the ex- 
pectation and intention that he shall indemnify himself for 
payment of the same at the expense of some other person.* 
There is, furthermore, marked distinction, founded on 
sound philosophy, between a direct and indirect tax, which, 
if concisely expressed, will constitute two unimpeachable 
definitions. Thus an indirect tax, whoever may first ad- 
vance it, is paid voluntarily and primarily (in the sense of 
ultimately) by the consumer of the taxed article. On the 
other hand, a direct tax has always in it an element of com- 
pulsion; not necessarily on the person who advances the 
tax in block, but on the person who is compelled to use or 
consume the taxed property or its product. For example, 
there is nothing compulsory or unequal in an ordinary 
license tax. If the license is high, no one is compelled 
to engage in a business covered by its legal requirement; 
and few persons will until the average profits of the taxed 
business by the regular laws of competition finally reach the 

* " In the assessment of indirect taxation, and such as is in- 
tended to bear upon specific classes of consumption, the object 
itself is alone attended to without regard to the party who may 
incur the charge. Sometimes a portion of the value of the specific 
product is demanded at the time of production — as in France, in 
respect to the article of salt. Sometimes the demand is made on 
entry, either into the State, as in the duties of import; or into 
the towns only, as in the duties of entry. Sometimes the tax is 
demanded of the consumer at the moment of transfer to him from 
the last producer — as in the case of the stamp duty, and the duty 
on theatrical tickets in France. Sometimes the Government re- 
quires a commodity to bear a particular mark, for which it makes 
a charge — as in the case of the assay mark on silver and a stamp 
on newspapers. Sometimes it monopolizes the manufacture of a 
particular article or the performance of a particular kind of busi- 
ness — as in the monopoly of tobacco and the postage of letters. 
Sometimes, instead of charging the commodity itself, it charges 
the payment of its price — as in the case of stamps on receipts and 
mercantile paper. All these are different ways of raising a revenue 
by indirect taxation; for the demand is not made on any person 
in particular, but attaches upon the product or article taxed." — 
M. Jean Baptiste Say, Treatise on Political Economy, 1821. 



342 THE THEORY AKD PRACTICE OF TAXATION. 

average profits of other like employments or investments. 
A tax on commodities like whisky, tobacco, fermented 
liquors, oleomargarine, playing cards, dice, and the like, 
can always be avoided as a primary tax, or can be paid at 
discretion. But there is nothing voluntary in the payment 
of a tax upon all real or personal property, or on the in- 
come of such property. Human beings can not subsist 
without some forms of personal property, and therefore a 
tax upon all personal property or its income is of necessity 
compulsory and not voluntary. Any general assessments 
of personal property on or by reason of its income, as well 
as assessments on real estate, are unavoidable in their 
nature, and therefore, from a philosophic or economic point 
of view, are typically direct taxes.* 

The presence or absence of the principle of compulsion 
as constituting the essential difference between a direct 
and an indirect tax has not, it is believed, been before gen- 
erally recognised by economists. And yet it is clearly in- 
volved or comprised in the definitions given by acknowl- 
edged authorities on the subject. Thus M. Leroy-Beaulieu, 
in his Traite de la Science des Finances, characterizes those 
taxes "as direct which the legislator intends should be paid 
at once and immediately by him who bears their burden. 
They strike at once his fortune or his revenue, and every 
intermediary between him and the treasury is suppressed." 
McCulloch (Principles of Taxation) describes a tax "to 
be direct when it is immediately taken from property," and 
indirect " when it is taken from its owners by making them 
pay for liberty to use certain articles or exercise certain 
privileges." M. Say defines a direct tax to be the " abso- 
lute demand of a specific portion of an individual's real or 
supposed revenue." (Political Economy, p. 461.) 
\^ In the assessment of direct taxes a proportionality is 
^'generally sought between the person who pays and the 
value of his property, or ability to pay. Thus, in the taxa- 
tion of watches, which are popular subjects for direct taxa- 
tion, the proportionality between the owner who pays and 
the amount of property rated is recognised and maintained, 
by imposing, as in the city of Philadelphia, a tax of one 

* See Alexander Hamilton's brief in the Carriage case, Hamil- 
ton's Works, vol. vii, p. 848. 



OBJECTIONS TO INDIRECT TAXES. 343 

dollar on watches of gold and one of seventy-five cents on 
watches of silver. In the assessment of indirect taxes the 
maintenance of any proportionality between the taxpayer 
and his fortune is not regarded. The idea of a personal 
assessment, which is characteristic of direct taxes, further- 
more does not apply to indirect taxes, and the person upon 
whom the incidence of such taxation primarily falls may 
be regarded a^dvancing rather than paying the tax, which 
is ultimatelj|Bid by a consumer, not as a tax, but as a 
part of the market price of a commodity. 

In other words, the general effect if not the avowed 
object of an indirect tax is to place its burden in a round- 
about way on the person who ultimately bears it. Taxes 
on imports, or customs dues; most internal revenue taxes; 
" octroi " taxes, or taxes levied by municipalities on com- 
modities — mainly articles of food — brought within their 
limits from without; stamps and fees for registering or 
verifying documents, are typical examples of indirect 
taxation. 

The objections to this form of taxation are so great as 
to warrant their characterization as evils. In the first 
place, they prevent the taxpayer from knowing what he 
pays, by mixing up the price of an article with the tax, 
as has been already noticed. Secondly, they enhance the 
cost of a commodity to the consumer to a degree (often 
largely) in excess of the original burden of the tax. Thus, 
if an importer of sugar, salt, wool, coal, or metals pays 
taxes on these commodities when they enter the territory 
of another country (as, for example, that of the United 
States), he adds them to the first or invoice cost of the 
importation. On this aggregate he calculates and adds 
interest and profits when he sells to a wholesale dealer; 
and this process is repeated by every smaller dealer or 
retailer through whose hands the commodities pass on 
their way to final consumption: and as the number of 
such intermediaries is greatest in the case of articles 
sold by small retailers, the final burden of the tax is 
greatest on the very poor, whose necessities compel them 
to buy in very small quantities.* There is thus a very 

* Some years since, at the instance of the writer, the late 
Charles L. Brace instituted an examination to determine the dif- 



344 THE THEORY AND PRACTICE OF TAXATION. 

real and close connection between indirect taxation and 
pauperism. 

In dealing with the relative influence of direct and in- 
direct taxation, Mr. Gladstone, when Chancellor of the 
Exchequer, took the position in a parliamentary discus- 
sion in 1859 that " the distinction between them involves 
the question between rich and poor. All classes pay in- 
direct taxation : the middle and wealthy pav^irect ; but in- 
direct taxes press much more seriously oi^pie labouring 
population." 

An instructive comparison of the method and influ- 
ence of direct and indirect taxation may be instituted by 
supposing the two systems to be put into practical opera- 
tion under similar circumstances, for effecting a purpose 
which all are willing to admit is most desirable or neces- 
sary. For example, a town meeting is held to provide 
means for building a bridge. The direct and honest way 
would be to assess and levy an equitable tax, adequate to 
provide for the proposed expenditure, on the property of 
the citizens of the town. An indirect way, as exemplified 
by the tariff (omitting the complicated machinery for ap- 
praising merchandise), would be to provide that the store- 
keepers of the town should charge, on account of the pro- 
posed expenditure, an excess over general prices to the ex- 
tent of two cents a pound on sugar, twenty-five cents more 
per yard on woollen cloth, five cents more for each tin pail 
or cup, and, keeping an account, return the results of the 
extra prices paid on the above-mentioned and other like 
commodities by their consumers, to the town treasury. 
Would it not be evident that under such a method of pro- 
cedure the wealth of the town would in a great degree 

ference in price to individual consumers of coal bought in compara- 
tively large and small quantities. He reported that, as a rule, 
when coal could be delivered at private residences in the city of 
New York (at the time when the investigation was made) for 
four dollars and a half per ton, its cost to the people whose 
poverty compelled its purchase by the " bucketful " was at least 
twelve dollars per ton. And yet when subsequently a philan- 
thropic capitalist proposed to remedy this grievance of the poor 
bv selling coal bought in small quantities at greatly reduced rates, 
h'is attempt did not meet with the full approval of the people 
whom he desired to serve, by reason of an inference by them that 
the project must in some way be a scheme for the promotion of 
private gain rather than public good. 



BURDENS OF INDIRECT TAXATION. 345 

escape taxation for the construction of the bridge, and that 
its expense and burden would fall mainly upon the poor; 
inasmuch as the average amount of consumption of sugar, 
cloth, and tin by the citizens of the town, and the average 
per capita taxation contingent on the same, would have 
no just or uniform relation to their ability to pay for the 
same? A man with ten thousand a year income will not 
probably consume ten times as much sugar as one with one 
thousand a year. 

In the case of imported commodities charged with im- 
port duties, not only is the price of the imported commodity 
enhanced directly by the duty, but the price of a much 
larger quantity of competing product of domestic origin 
is increased to approximately the same extent. Thus, in 
the case of iron and steel, the average difference in the 
prices of these commodities in England and the United 
States during the ten years from 1878 to 1887 inclusive, 
occasioned by the imposition of indirect customs taxes by 
the latter country on such a comparatively small propor^ 
tion of its domestic consumption as was imported, increased 
the cost of the total consumption of these products in the 
United States during the period mentioned, to the extent 
of at least $550,000,000. Such an increase represented an 
average of $55,000,000 per annum in excess of the cost 
of a like quantity to consumers in Great Britain during 
the same period; an aggregate, according to the census 
data of 1880, in excess of the entire capital invested in 
the iron and steel industries of the country, including all 
its mines of both coal and iron. 

An incident also illustrative of the character of an in- 
direct tax was afforded some years ago when it was proposed 
in Washington to ex-Governor Warmoth, of Louisiana, as 
representative of the sugar-producing interest of that State, 
to substitute a bounty on domestic sugars in place of the 
protection afforded by the then tariff (taxation) on the 
importation of foreign sugars. The suggestion was re- 
pelled with no little warmth, on the ground that such a 
substitution would be most prejudicial to the domestic 
sugar industry. " The people," he said, " know that a 
bounty is a tax, and as soon as they found out its amount 
would insist upon its repeal, and thus the sugar interest 
would lose both the protection of the tax on foreign com- 
23 



346 THE THEOEY AND PRACTICE OF TAXATION. 

petitive imports as well as the bounty." How far subse- 
quent events harmonized with this forecast by: Mr. War- 
moth is Worthy of brief notice in this connection. Con- 
gress in 1891 entirely repealed all the tariff (tax) on the 
importation of raw sugars, and to compensate the domestic 
producers of sugar for the abrogation of the protection 
which had been previously given them, authorized the pay- 
ment by the Federal Government of a bounty of from one 
and three fourths to two cents per pound on their product. 
In a little more than four years subsequently, when the 
effect of the bounty — aggregating over $30,000,000 and 
representing nearly the whole cost of producing the sugar 
entitled to bounty — had been fully recognised by the public, 
Congress repealed the act authorizing its payment without 
restoring the former protective duties; and with such a 
pronounced approval of its action on the part of the people 
of the United States as to render it almost certain that 
no Congress will hereafter authorize the direct payment 
of bounties by the Federal Government for any purpose.* 

The Eelative Burden on Taxpayers oe Direct and 
Indirect Taxation. — Any discussion of this subject would 
be incomplete that failed to notice the estimates of the 
relative burden on taxpayers of direct and indirect taxa^ 
tion by persons well qualified by study, and administra- 
tive tax experience, to express an opinion. 

It is not a matter of dispute that the cost of collecting 



* The fundamental question involved in this sugar-bounty mat- 
ter has never been passed upon directly by the Supreme Court 
of the United States; but the disbursement of the money voted 
by Congress for the payment of the sugar bounties having been 
withheld by the Comptroller of the United States Treasury on the 
ground that the appropriation was unconstitutional, the case came 
up before the United States Court of Appeals of the District of 
Columbia, which sustained the opinion of the Treasury official, 
and was adverse to the claim that "the general welfare" clause 
of the Constitution might be stretched to encourage the production 
of a commodity by a bounty. " If to Congress be conceded," it 
said, " the power to grant subsidies from the public revenues to all 
objects it may deem to be for the general welfare, then it follows 
that this discretion renders superfluous all the special delegations 
of power contained in the Constitution, and opens a way for a 
flood of socialistic legislation, the specious plea for all of which 
has ever been ' the general welfare.' " For further notice of this 
celebrated case see ante, p. 299. 



COST TO THE CONSUMER. 347 

direct taxes is, as a rule, much less than is the case with 
indirect taxes, and that of the receipt contingent on the 
former the largest proportion accrues to the Government. 
Thus in Prussia, where the administration of taxation may 
be characterized generally as despotic, the cost of raising 
revenue from direct taxes has been reported at four per 
cent and of indirect at twelve per cent. Under a direct 
tax system everybody knows how much he really pays, and 
if he votes for war or any other expensive national luxury, 
he does it with his eyes open to what it costs him. If all 
taxes were direct, taxation would be much more apparent 
than at present, and there would be a continuous popular 
demand, which at present there is not, for economy in 
public expenditures. 

In England it has been estimated that for every fifty 
millions of indirect taxes paid into the exchequer, seventy 
millions are finally taken from consumers; and M. Guyot, 
late French Minister of Public Works, has recently shown, 
by a series of statistical diagrams, that the octroi system 
of indirect taxation in France adds on an average twenty 
per cent to the cost of goods to consumers over and above 
the tax.* In New Zealand, where a comparatively small 
population and limited and definite sources of revenue have 
afforded extraordinary facilities for making an analysis, 
an expert has recently calculated that for every million and 
a half collected through the customs the people of that 
colony have paid not less than a million and two thirds. 

In 1851 a committee of the Liverpool (England) 
Financial Eeform Association published a statement that 
a careful investigation instituted by it showed that the 
difference between the net amount paid into the exchequer 
from indirect taxes and the gross amount taken through 
or in consequence of this system from the taxpayers, was 
not less than an average of thirty-seven per cent ; and added 
that the evidence that had led to this conclusion " can 
neither be controverted as matter of fact, nor strengthened 
as a matter of argument." 

* It seems incredible, he is reported as graphically saying, 
" that Frenchmen, usually so sensitive to ridicule, can quietly 
submit to be ' sweated ' and ' plucked ' like fowls, without crying 
out against this antiquated method of indirect taxation only so 
long as they are kept blind to the tax." 



348 THE THEORY AND PRACTICE OF TAXATION. 

In 1846 Hon. Kobert J. Walker, then Secretary of the 
Treasury, in accordance with instructions from the United 
States Senate to report the extent to which the price of 
domestic products was enhanced by the then existing duties 
imposed on the import of competing commodities, sub- 
mitted the following statement : " The revenue from im- 
ports last year exceeded twenty-seven millions of dollars, 
of which, twenty-seven millions are paid to the Govern- 
ment upon imports, and forty-four millions in enhanced 
prices of similar domestic articles. This estimate is based 
upon the position that the duty is added to the price of the 
import and also of its domestic rival. If the import is 
enhanced in price by the duty, so must be its domestic 
rival, for, being like articles, their price must be the same 
in the same market." * 

In a debate in the Constitutional Convention of the 
State of New York in 1867-'68, the late Hon. George 
Opdyke, a member, and one of the best economic and fiscal 
authorities of his time, stated that his investigations had 
led him to the conclusion that consumers of imported arti- 
cles in the United States are " charged with at least fifty 
per cent in addition to the duties actually received by the 
Government." 

As the result of a careful study of the subject, based on 
the rates of duty imposed by the tariff law of March, 1883, 
Hon. William M. Springer (for a long time a prominent 
member of Congress) was led to the conclusion that the 
average increase in the prices of domestic commodities due 
to the duties imposed on the import of competitive products 
had not been less than $556,000,000 for every year of the 
twenty years next precedent to 1883, " making an aggre- 
gate of over eleven billions of dollars, not one dollar of 
which went into the national Treasury." (See North 
American Review, vol. cxxxvi, No. 319.) 

The experience of the indirect taxation of commodities 
also shows that they favour the concentration of business 
in a few hands, or the creation of monopolies. Of this the 

* Senate Document, First Session, Twenty-ninth Congress, 
1845-'46. This estimate was founded on an apparently careful 
investigation of the prices " of sixteen leading domestic articles 
and the manufactures thereof, similar to those on which the pres- 
ent duties (1845) are imposed." 



MONOPOLIES AND INDIRECT TAXES. 349 

experience of the internal revenue system of the United 
States has furnished some curious examples. Thus a tax 
was imposed in 1864 on matches at the rate of one cent 
per package of one hundred or less; and, although com- 
paratively insignificant, it yielded at one time, by reason 
of the immense number of matches consumed, an annual 
revenue of over $3,500,000, which sum the manufacturer 
was obliged to advance by purchasing and affixing stamps 
to each package as a prerequisite to selling. To manu- 
facturers furnishing their own design for the stamp, the 
Government allowed a discount of ten per cent on stamps 
of an aggregate value in excess of five hundred dollars pur- 
chased at any one time, and sixty days' credit to such manu- 
facturers as could offer satisfactory security (i. e., in the 
form of United States bonds) for their payments. Under 
such circumstances small manufacturers with a limited 
capital were crushed, and the business of manufacturing 
concentrated in a very few firms, which raised the retail 
price of matches to an extent considerably in excess of the 
amount of the tax. In later years (1883), when it was 
proposed to repeal this tax, the singular spectacle was af- 
forded of the larger manufacturers strenuously exerting 
themselves to influence Congress to prevent the repeal, 
and asking that they might continue to be taxed. Their 
efforts were, however, unavailing. The tax was abolished, 
and the retail price of matches immediately declined all 
of sixty per cent — i. e., from fifteen cents to six cents for 
six boxes. 

Many years ago the late Henry C. Carey characterized 
indirect taxation in the following forcible and figurative 
language: "The whole system of indirect taxation," he said, 
" is mere petty larceny. It is an attempt to filch that which 
can not be openly demanded. It is one of those ' inven- 
tions ' of man by which the few are enabled to grow rich 
at the expense of the many, and is therefore greatly 
favoured by that class of men who prefer living by the 
labour of others to living by their own. The man who 
plunders a city is of the same species with the highway 
robber. The one who imposes indirect taxes is of the same 
species with the chevalier d'industrie. All belong to the 
genus of great men. All are equally destitute of manly or 
generous feeling. The plunderer of cities selects those 



350 THE THEORY AND PRACTICE OF TAXATION. 

which are weak and defenceless, and the collector of in- 
direct taxes selects the commodities used by poor men who 
can not defend themselves ; and where the system most pre- 
vails, men are most weak and cheap and food most dear." * 

And yet Mr. Carey's name, more than that of any other 
citizen of the United States, is identified with a system of 
raising revenue which is based exclusively on indirect 
taxation. 

Mr. Henry George, in one of his essays, also thus forci- 
bly makes clear a leading characteristic of the indirect taxes 
levied by the Federal Government : " Propose/ 7 he says, 
" to abolish, or even reduce, one of these taxes, and Wash- 
ington will be filled with lobbyists begging and working 
for its extension. What does this mean? It means that 
these taxes yield revenue to private parties as well as to 
the Government/' 

Carlyle was not far out of the way in characterizing 
legislators who advocate indirect taxation as having a pur- 
pose, " that those who are not hungry should suppress those 
who are. The pigs are to die — i. e., be subject to taxation 
— no conceivable help for that; but we, by God's blessing, 
will at least keep down their squealing ! " 

*H. C. Carey, Past, Present, and Future, pp. 464, 465. "So 
long as it (indirect taxation) shall be permitted to exist, de- 
population, and the system of large revenues, raised by means 
of indirect taxation, to be squandered by those who live by man- 
aging the affairs of others, must continue. So long as it exists, 
the planter and farmer must continue to give a large portion of 
their small product in exchange for a small quantity of clothing. 
So long as it exists, every attempt at the establishment of freedom 
of trade must be a failure. With its correction, every obstacle to 
the establishment of perfect freedom will disappear, and the tariff 
will pass out of existence. The interest of every farmer and planter, 
and of every labourer and mechanic, is directly concerned in the 
adoption of a measure that shall be calculated to promptly pro- 
duce the effect desired — i. e., repeal of indirect taxation— but it 
is not more his interest than his duty. So long as the present 
system shall continue, trade of every kind must be subject to 
violent fluctuations which enable the few to enrich themselves at 
the expense of the many, and enable gambling speculators to live 
in palaces and ride in coaches by aid of indirect taxation levied 
upon the hard-working mechanic and honest trader, ruined by 
changes in the value of their property. It is therefore the bounden 
duty of every man desirous to promote the great cause of morality, 
justice, and of truth to unite his efforts with those of his neighbour 
for the early accomplishment of this great object " (pp. 471, 472). 



OPPOSITION TO DIRECT TAXES. 351 

The question of the relative merits of the two systems 
of taxation under consideration has long been — since the 
days of Jeremy Bentham — a subject of discussion, with a 
trend of popular sentiment unmistakably in favour of in- 
direct, or it should rather be said in opposition to direct, 
taxation.* 

What satisfactory explanation can be given for a con- 
clusion so clearly adverse to public interest ? John Stuart 
Mill has attempted it as follows : " The feeling is not 
grounded on the merits of the case, and is of a puerile kind. 
An Englishman dislikes not so much the payment as the 
act of payment. He dislikes seeing the face of the tax col- 
lector and being subjected to his peremptory demand. Per- 
haps, too, the money which he is required to pay directly 
out of his pocket is the only taxation which he is quite 
sure that he pays at all. That a tax of two shillings per 
pound on tea, or of three shillings per bottle on wine, 
raises the price of each pound of tea and bottle of wine 
which he consumes by that and more than that amount 
can not indeed be denied. It is the fact, and is intended 
to be so, and he himself is perfectly aware of it; but it 
makes hardly any impression on his practical feelings and 
associations, serving to illustrate the distinction between 
what is merely known to be true and what is felt to be so." f 

* " We find, as the result of our examination and contrast, that 
direct taxation is, in every essential feature, vastly superior to 
our present method; that the former accords with justice, econ- 
omy, and all the other requirements of a sound policy; while 
indirect taxation violates every principle on which legislation 
should be based. It must be owned, however, that notwithstand- 
ing the weighty objections to the one and the economy and perfect 
fairness of the other, there are few of our citizens who are de- 
sirous of making the proposed change. Direct taxation is a phrase 
that grates on the nerves of all. Men start at its sound as though 
it was a portent of evil; something which had impressed them 
with deadly fear. They seem to regard it as deeply imbued with 
the spirit of tyranny, to say the least, if not as the most forbid- 
ding impersonation of that monster. So unpopular is this method 
of taxation that an aspirant for public station or honours would 
as soon think of committing high treason as propose or advocate 
it; and if his ambition were bounded by the present, he would be 
right, for he could not more effectually destroy his popularity." — 
Treatise on Political Economy, by George Opdyke. 

The tendency has more recently been toward direct taxes in 
every country except' Great Britain. 

tMill, Principles of Political Economy, book v, chap, vi, § 1. 



352 THE THEORY AND PRACTICE OF TAXATION. 

Mr. Mill also expressed the opinion that men's minds 
are so little guided by reason on this subject that if it was 
attempted to raise all the imperial revenue of Great Britain 
by direct taxation, the dissatisfaction on the part of the 
people at having to pay so much would be extreme. 

Speaking on this subject in the House of Lords in 1860, 
the Earl of Derby said that " by making the whole revenue 
of the United Kingdom depend upon direct taxation the 
pressure would be so odious that wars would be avoided, 
because no party would incur the odium of carrying 
them on." 

There can be no doubt that high direct taxes, making 
evident to the most unobservant citizen the excess of burden 
imposed upon him, have been the prime cause of the re- 
pudiation of public debts in the United States, and the 
arrest or ruination of internal improvements of great im- 
portance. 

Mr. George Opdyke, in his Treatise of Political Econo- 
my, advanced the idea that the phenomenon of preference 
for indirect taxation in the United States might be ac- 
counted for in part by the fact, that the unjust manner in 
which taxes were levied by Great Britain on her Ameri- 
can colonies engendered in the public mind of their people 
" a deep-seated hatred of every form of taxation ; and the 
direct being its most visible or sensible form, it has been 
mistaken for the worst — an impression that was strength- 
ened when the most unpopular of our Presidents (the elder 
Adams) recommended this policy, and when the opposing 
political party, seizing the occasion to profit by public 
prejudice, represented it as the worst form of tyranny." * 



* An acute economic student and observer writes as follows 
on this subject: "I have been very much struck by the apathy 
of taxpayers to the increase of taxes in their most direct form. 
Take Philadelphia, for example. Nearly every man owns a house 
there, and yet there seems to have been no objection to the grossest 
municipal extravagance, entailing heavier and heavier burdens 
every year. The city to-day levies about ten times as much per 
head as it did thirty' or forty years ago. The exact figures would 
be easy to get, and would certainly point a moral adverse to your 
view that direct taxation is twin brother to public economy. I 
am inclined to look for an explanation to the fact that real estate 
values have steadily risen, so that after all the increase of taxation 
has been easily met." 



EXTRAVAGANCE AND DIRECT TAXES. 353 

An economic phenomenon in connection with this sub- 
ject goes far to support the idea that political economy can 
not be an exact science, inasmuch as it is largely or wholly 
based on human action, concerning which nothing certain 
and invariable can be predicated. Thus the argument and 
evidence are complete that it is not a wise, humane, or 
perhaps a moral policy for a state created or maintained 
for the purpose of promoting the interests of its people to 
adopt a system of indirect taxation for the raising of reve- 
nue ; and, furthermore, that it is contrary to human nature 
for a people to desire or be willing to pay more for any 
service or commodity than it is intrinsically worth; or, 
what is the same thing, perform more work in return for 
the same than is a fair equivalent. And yet both govern- 
ments and the people in all countries and at all times (in- 
cluding the present) have shown a preference for this sys- 
tem of taxation over any other. 

One explanation of this curious inconsistency is as fol- 
lows : It is and ever has been the aim of all governments 
to avoid responsibility and occasion for popular criticism 
in respect to their financial policy ; and a direct tax is 
an annual reminder to their citizens or subjects of the 
burden of government, and prompts them to hold the gov- 
ernment to a strict accountability. Under a free or popu- 
lar form of government a general system of direct taxa- 
tion would practically call for an annual judgment of the 
voters on the fiscal policy of an administration in power, 
and such a tightening of the purse-strings as would reverse 
such policy in case of its popular disapproval. But with a 
system of indirect taxation, as a tariff on imports, a gov- 
ernment can undertake the most unnecessary and extrava- 
gant measures and obtain revenue sufficient to defray its 
contingent expenditures without general popular disap- 
proval. 

Indeed, the best defence that can be offered for the con- 
tinued resort to indirect taxation is, that with the present 
large demands on the part of all civilized states for reve- 
nue to meet increasing fiscal obligations, mainly incurred 
for war expenditures, past and present, and the unwilling- 
ness of the people to pay direct taxes, it would be practically 
impossible to maintain the modern government without 
large contributions from people of limited resources; and 



354 THE THEORY AND PRACTICE OP TAXATION. 

that this purpose can only be accomplished by taxing them 
indirectly. On the other hand, it may be replied that if 
^~ direct taxation was alone made the agency for obtaining 
revenue, unnecessarily large expenditures through the re-. 
| sistance of the masses would not be possible. In like man- 
ner, if the present indirect taxes levied on imports by the 
United States were to be replaced by direct taxes, collected 
in money or in kind from purchasers for final consumption, 
on whom the burden in both cases finally rests — if every 
person buying silk or sugar were stopped by a government 
tax gatherer at the door of the place of purchase and thirty 
per cent of his purchases taken in kind in one case and fifty 
per cent in the other in payment for taxes, it is safe to 
say that such a system would not continue operative any- 
longer than would suffice for the people, through legal 
methods, to compel its modification. One explanation — • 
i. e., of inconsistency — on the part of the people who pay 
taxes is, that although the benefits derived from the insti- 
tution of government (which practically can not exist with- 
out taxation) are of the first importance, they are not so 
very obvious, nor so striking, as to be readily recognised 
and appreciated by the masses, who are accordingly apt 
to look with complacence upon a direct (personal) demand 
for a tax in the light of a compulsory payment, for which 
no equivalent is returned. Indeed, this feeling is so strong 
that it has become an almost popular maxim in all coun- 
tries that " there is nothing which a person so hates to do 
as to pay taxes," in case they are direct. But " by the in- 
genious plan of taxing articles on which incomes are ex- 
pended, rather than openly demanding a portion of the 
income itself, the amount of taxation is concealed from the 
mass of taxpayers, and its payment is made to appear in 
r some measure voluntary. The indirect tax being gen- 
erally advanced rather than paid, as has been already 
shown, in the first instance by the' importers, the ultimate 
purchasers for consumption confound the tax with the 
natural price of the commodity. No separate demand being 
made upon them for the tax, it escapes their considera- 
tion, and the article which they receive seems the fair 
- equivalent of the sacrifice made in acquiring it. Indirect 
taxes have also the advantage of being paid by degrees, 
in small portions, and at a time when the commodities are 



DIRECT TAXES IN DEPENDENCIES. 355 

wanted for consumption, or when it is most convenient for 
the consumer to pay them." * 

In the attempt, furthermore, of civilized rulers to main- 
tain a civilized government over an uncivilized people, there 
seems to be no practical method of compelling such a 
people to help maintain a proper and desirable govern- 
ment except through a resort to indirect taxation. Thus, 
in British India, a country of low civilization, small' ac- 
cumulation of wealth, and under such climatic conditions 
as necessitate the minimum of clothing, shelter, and food, 
the only way by which the mass of the native population 
can be compelled to contribute anything whatever, apart 
from a tax on land in the form of rent, toward the support 
of a government whose beneficent and civilizing influence 
has become a matter of history, is by the taxation of salt, 
the consumption of which is a necessity to all, and the pro- 
duction and distribution of which can in a great measure 
be controlled. 

In the British island and colony of Jamaica, populated 
mainly by emancipated blacks and their descendants (557,- 
132 out of a total of 580,804 in 1881), who own little or 
no land, and consume little of food other than what is 
produced almost spontaneously, the problem of how to raise 
revenue by any form of taxation for defraying the neces- 
sary expenditures of the Government has been one of great 
embarrassment. For the year 1884 these expenditures 
averaged three dollars and forty cents per head of the en- 
tire population, and of this amount an average of about 
fifty cents per head could only be obtained from any in- 
ternal taxation, and this mainly through the indirect 
agency of licenses and stamps, and not by any direct assess- 
ment. The balance of required revenue was obtained from 
a special tax on some set manufacture, and from export 
and import duties. A similar state of affairs in Mexico, 
heretofore noticed somewhat in detail (see page 139), 
would also seem to necessitate a resort to a system of in- 
direct taxation. 

Attention is here also particularly directed to a fact 
that has escaped the notice of many economic and fiscal 
authorities and writers, and that is the remarkable change 

* J. R. McCulloch, Taxation and the Funding System. 



356 THE THEOEY AND PRACTICE OF TAXATION. 

that has taken place within the last fifty years in the Brit- 
ish tax system, whereby, through an extensive substitution 
of direct for indirect taxation, the burden of tax incidence 
has been shifted to a great extent from the community at 
large to the propertied classes. Thus, in 1841-'42, indirect 
taxes yielded seventy-three per cent and direct taxes twenty- 
seven per cent of the total imperial revenue, but in 1895-' 9 6 
indirect taxes yielded fifty-two per cent and direct taxes 
forty-eight per cent. Is not the inference warranted, that 
in the change in the incidence of British taxation above 
noted is to be found at least a partial explanation of the 
remarkable and progressive increase, in comparatively re- 
cent years, in the consumption of the various commodities 
that enter into the living of the labouring classes of Great 
Britain, and is it not also singular that the above facts and 
their possible inference do not as yet seem to have attracted 
the attention of those most interested in social economics? 



CHAPTEE XVI. 

NOMENCLATURE AND FORMS OF TAXATION. 
PART II. 

The nature and scope of the " legal " and wholly anom- 
alous definition (to which reference has been made, see 
page 341) that has been given in the United States by its 
Supreme Court to a direct tax,* and the interesting judicial 
and historical circumstances in connection therewith, are 
substantially as follows : 

The Constitution of the United States provides that 
" representatives and direct taxes shall be apportioned 
among the several States according to their respective num- 
bers " — that is, population — " and excluding Indians not 
taxed." The origin of the idea thus incorporated in the 
Constitution of apportioning direct taxes according to 
representation, or population, rather than upon property, 
is not certainly known, and has been made the subject of 
speculation. Hamilton, subsequent to the adoption of the 
Constitution, suggested that the writings of the French 
economists of the eighteenth century, with which a num- 
ber of the prominent members of the Constitutional Con- 
vention were familiar, were its source. These held that 
" agriculture was the only productive employment, and 
that the net product from land, to be found in the hands 
of the landowner, is the only fund from which taxation 
can draw without impoverishing society." They were ac- 

* Chief-Justice Chase on more than one occasion judicially inti- 
mated that the definition of direct taxes by political economists 
can not be used satisfactorily for the purpose of construing the 
phrase in the Constitution of the United States. Thus, a tax on 
the circulation by banks of State bank notes was held not to be 
direct (Veazie vs. Fenno, 8 Wallace, 533-546), and so also of a 
tax on incomes of insurance companies (Pacific Insurance Com- 
pany vs. Soule, 7 Wallace, 433). 

357 



358 THE THEORY AND PRACTICE OF TAXATION. 

cordingly led to class taxes habitually as direct when laid 
immediately upon the landowner, and as indirect when laid 
upon somebody else, but in their opinion destined to be 
borne by the landowner ultimately. Precedents for levy- 
ing taxes by apportionment were also to be found in the 
French tattle reelle, which was a tax on the income of real 
property and laid by apportioning a fixed sum among the 
provinces and requiring from each its quota. The English 
land tax, established under William III, embodied a like 
provision.* 

Be this as it may, the distribution of property (wealth) 
among the people of the American States at the time of 
the adoption of the Federal Constitution, as shown by the 
debates in the Constitutional Convention, was, very curi- 
ously, such that an apportionment of taxes according to 
population and representation was not inequitable. When 
the subject was under discussion, Eoger Sherman, of Con- 
necticut, said he " thought the number of people alone the 
best rule for measuring wealth as well as representation " 
(Elliot's Debates, v, 297). Mr. G-orham, of Massachusetts, 
" supported the propriety of establishing numbers as the 
rule. He said that in Massachusetts estimates had been 
taken in the different towns, and that persons had been 
curious enough to compare these estimates with the respect- 
ive numbers of people, and it had been found, even in- 
cluding Boston, that the most exact proportions prevailed 
between numbers and property" (ibid., 300). Mr. Wilson, 
a leading member from Pennsylvania, said that, "taking 
the same number of people in the aggregate in the western 
settlements of Pennsylvania and in the city of Philadel- 
phia, he believed there would be little difference in their 
wealth and ability to contribute to the public wants " 
(ibid., 301). Dr. Johnson, of Connecticut, "thought that 
wealth and population were the true, equitable rules of 
representation; but he conceived that these two principles 
resolved themselves into one, population being the best 
measure of wealth" (ibid., 303). And when the vote 
came to be taken in the Federal Convention on the propo- 



* For further discussion of this subject, see paper by Prof. 
Charles F. Dunbar, contributed to The Journal of Economics, for 
July, 1889, and entitled The Direct Tax of 1861. 



FEDERAL DIRECT TAXES. 359 

sitiori that direct taxation ought to be proportioned to 
representation, it passed without opposition (ibid., 302). 

In the five occasions— 1798, 1813, 1815, 1816, and 1861 
^in which the Federal Government has established a gen- 
eral system of direct taxation, there has been no essential 
and radical difference of opinion in respect to the methods 
and instrumentalities by which the provisions of the enact- 
ments could be made effective for the purpose of raising 
revenue. The amount of money desirable to raise was first 
determined. Then the population of each State was taken, 
according to the latest preceding census, and the proportion 
of tax proceeds respectively due was calculated.* A statute 
was then passed declaring that each State should pay to 
the Federal Treasury so much money, according to its 
ascertained proportionate liability of the aggregate amount 
which the entire Union of the States was required to raise. 
In each of the first four cases of such a system of taxation 
the several States were empowered to assume or assess in 
their own way the sums for which they were severally as- 
sessed and liable to pay into the national Treasury. In 
the case, however, of the levy in 1861, eleven States openly 
in insurrection against the Federal Government, one loyal 
State, and one Territory (Utah) refused or neglected to pay 
their assessment; whereupon a law was passed by Congress 
authorizing the appointment of special officials, whose duty 
it was to go into such States as soon as it was practicable 
and levy the proper assessments, seizing and selling real 
property whenever it became necessary to enforce payments 
of the amount required. And these provisions of law were 
enforced by threat or action to such an extent that about 
$2,800,100 were collected up to 1870, out of an aggregate 
quota of $5,153,891 due from all the States that adopted 
ordinances of secession; the total amount assessed on all 
the States having been $20,000,000. 

The confusion attendant on the settlement after the 
war of the unpaid liabilities of the impoverished insurrec- 
tionary States to the Federal Government, on account of 
the direct tax of 1861, finds further illustration in the cir- 

* Up to and including the direct tax of 1861, its imposition 
was scrupulously made in accordance with the understanding of 
the framers of the Constitution. Thus, the ratio of the State of 
New York in 1861 was returned at $2,602,918f. 



360 THE THEORY AND PRACTICE OF TAXATION. 

cumstance, that the Comptroller of the United States 
Treasury decided in 1883 that the sum of $35,555, appro- 
priated by an act of Congress to refund to the State of 
Georgia money expended by it in 1777, or one hundred 
and six years previously, for the common defence in the 
War for Independence, should be paid to the Treasurer of 
the United States, " to the credit of Georgia on account of 
direct taxes charged against the State." The Supreme 
Court of the United States also decided in 1887 (United 
States vs. Louisiana, 37, 123) that the direct-tax law in 
1861 did not create any liability on the part of a State to 
pay the tax ; and that the apportionment merely designated 
the amount to be levied upon the property of individuals in 
the several States, without any liability attaching to the 
State in its political and corporate character. " This de- 
cision finally left the unpaid quota of the direct tax of 1861 
in precisely the same position as any other tax assessed upon 
individuals, which the United States has been unable or 
has neglected to collect in full." * 

At the time when it was proposed to enforce the tax 
on defaulting States by the seizure and sale of land, a 
doubt was expressed whether the tax in question was, in its 
essence, " a tax on the land and all the various estates into 
which the fee may have been divided, or was a tax on the 
owner of the land and levied on the interest of the owner 
in it, and on no other subordinate or incorporeal interest. 
But no tax was ever collected or any land sold under the 
act of seizure and sale." — Hillard, Law of Taxation. 

But, apart from a unison of opinion as to the methods 
by which a direct tax should be levied and collected under 
the Federal Government, the determination of what is a 
direct tax has not been an easy matter; and the question 
came up for solution before the United States Supreme 
Court shortly after 'the adoption of the Constitution, or 
in 1794, in a case that has become historic in the annals 
of American jurisprudence. 

Congress having imposed a tax on pleasure carriages — 
or chariots, as they were then termed — its collection was 
resisted by one Hylton, of Virginia, on the ground that 



* Dunbar, Direct Tax of 1861, Quarterly Journal of Economics, 
July, 1889. 



THE CARRIAGE TAX. 361 

such a tax was a direct tax, and had not been apportioned 
among the States, as required by the Constitution.* The 
court held that the tax in question was to be considered 
as a tax on the expenses of living and not a direct tax 
within the meaning of the Constitution, as the evils which 
would attend its apportionment according to population 
would be so great "that the Constitution could not have 
intended that an apportionment should be made." " The 
Constitution," said the Court, " evidently contemplated no 
taxes as direct taxes, but such as Congress could lay in 
proportion to the census. A tax on carriages can not be 
laid by the rule of apportionment without very great in- 
equality and injustice. Suppose two States, equal in cen- 
sus, to pay eighty thousand dollars each, by a tax on car- 
riages of eight dollars on every carriage, and in one State 
there are one hundred carriages and in the other one thou- 
sand. A, in one State, would pay for his carriage eight 
dollars; but B, in the other State, would pay for his 
carriage eighty dollars." (Opinion by Justice Chase, 3 
Dall., 171.) 

These, and other decisions of the United States Su- 
preme Court, have accordingly been regarded as affirming, 
that within the meaning of the Constitution of the United 
States there are only two forms of taxation that can be 
considered as direct — namely, a capitation or poll tax, sim- 
ply, and without regard to property, profession, or any 
other circumstance, and a tax on land; and that no other 
taxes can be regarded as direct by the Federal authorities. 
It is also worthy of note that since the decision in the car- 
riage case in 1796, Congress, in the few instances in which 
it has imposed a tax which it recognised as direct, has never 
made it applicable to any objects other than real estate and 
slaves. 

The following additional memoranda are pertinent to 
this discussion : While the carriage case was pending before 
the United States Supreme Court in 1796, Mr. Madison, 
who participated in the convention that framed the Con- 
stitution, wrote to the effect that the action of Congress 
in imposing this tax was constitutional, but that he doubted 
whether the court would so regard it. Hamilton, who 

* Hylton vs. The United States, 3 Dallas, 171. 
24 



362 THE THEORY AND PRACTICE OF TAXATION. 

appeared as one of the counsel for the United States in this 
case, also left behind him a legal brief in which he says: 
" What is the distinction between direct and indirect taxes ? 
It is a matter of regret that terms so uncertain and vague 
on so important a point are to be found in the Constitu- 
tion. We shall seek in vain for any antecedent settled legal 
meaning to the respective terms. There is none. We shall 
be as much at a loss to find any disposition of either which 
can satisfactorily determine the point." In his argument 
on behalf of the Government in the carriage case, Hamil- 
ton, however, mentioned such taxes which should be con- 
sidered as direct; namely, direct capitation taxes, taxes on 
land and buildings, and general assessments, whether on 
the whole property of individuals, or on their whole real 
or personal estate.* And in rendering the decision in the 
income-tax case of Springer vs. United States, Justice 
Swayne also added to our historical information on this 
subject by remarking, that " the question of what is a direct 
tax is one exclusively of American jurisprudence," which 
is the same thing as saying that the system of American 
taxation is so peculiar, that the question involved has never 
been made a subject of legal controversy and discussion 
under any other or foreign system of taxation. 

This statement of Judge Swayne is one of a number 
of illustrations that will confront the student of the exist- 
ing American system of taxation — if, indeed, it is worthy 
of being called a system — showing how the makers and ad- 
ministrators of tax laws in the United States have drifted, 
as it were, into uses and practices which long usage has 
made to appear almost as of self-evident validity, but which 
find no precedent in the experience or system of other 
countries, and no solid foundation in any correct economic 
philosophy, f 

* Works of Alexander Hamilton (Lodge's edition), vol. vii, 
p. 328. 

t Since the statement of Judge Swayne (above referred to) 
was made, a decision has been rendered by the Privy Council of 
Great Britain, in which the recognition of direct taxation and its 
method of incidence by British jurisprudence is taken for granted ; 
for in concurrence with a decision rendered by the full bench of 
judges concerning an opinion of one of their members, wherein 
he says, in speaking of a point that had been raised, that a tax 
must be general in order to be a direct tax, they reject that view, 



DIRECT INCOME TAXES. 363 

There were also two reasons and two points of view in 
the Hylton case on which the judgment of the court might 
have been predicated. One was that Hylton possessed one 
hundred and twenty-five carriages, which warranted the 
inference that they were hackney carriages, kept and used 
for hire, and that the tax levied on each carriage ultimately 
fell on the consumer and not on the owner (Hylton) him- 
self; or, in other words, the tax in question was a tax on 
transportation, and, as such, capable of transference to the 
person carried, and therefore, when imposed on the car- 
rier, was an indirect and not a direct tax. Another point 
is, that a tax on carriages has not the compulsory element 
which pertains to all direct taxes, as their ownership and 
use are optional, which is the special characteristic of all 
indirect taxes. 

Substantially the same question involved in the car- 
riage case came up again (in 1874) before the same court 
(Springer vs. United States, 12 Otto, 102 U. S. Eeports, 
p. 856), when a citizen of Illinois resisted the payment 
of a national income tax on the ground that such a tax 
was a direct tax; and not being levied in the manner pre- 
scribed by the Constitution, was not legal and valid. From 
an economic point of view such a tax, as has been before 
shown, is and always has been regarded as a direct tax; 
and on the hearing the plaintiff adduced in support of his 
position the testimony, as found in their writings, of almost 
every acknowledged authority on political economy or 
finance in the English language — Adam Smith, Eicardo, 
Mill, Wayland, Brande, Say, Perry, as well as the Encyclo- 
paedia Britannica and almost every other cyclopaedia or 
dictionary of English or American origin.* The court, 
however, held as before, that under the definition of a direct 
tax, as expressed in the Constitution, the income tax was 

inasmuch as it " would deny the character of a direct tax to the 
income tax of this country — Great Britain — which is always spoken 
of as such, and is generally looked upon as a direct tax of the most 
obvious kind ; and it would run counter to the common understand- 
ing of men on this subject, which is one main clew to the meaning 
of the Legislature." 

* In all the debates in the British Parliament it is doubtful 
if any British statesman can be named who has ever spoken of 
an income tax as other than a direct tax. The same may be 
also affirmed of French authors and statesmen. The following 



364 THE THEORY AND PRACTICE OF TAXATION. 

not direct but indirect, and accordingly that its imposition 
was not unconstitutional. The following was the 'exact 
language of the Court : 

" Our conclusions are that direct taxes within the mean- 
ing of the Constitution are only capitation taxes, as ex- 
pressed in that instrument, and taxes on real estate; and 
that the tax of which the plaintiff complains" (i.e., a 
direct tax) " is within the category of an excise or duty." 

Whether warranted or not, the drift of public opinion 
in the United States has been, that the decision of its Su- 
preme Court in the Springer case in 1874, and, to a certain 
extent, in all previous cases touching the constitutionality 
of an income tax, was made under the pressure of an ap- 
parent political necessity. Had the decision been to the 

citations of the opinions of various recognised authorities are illus- 
trative : 

" The taxes which it is intended should fall indifferently upon 
every species of revenue are capitation taxes." — Adam Smith. 

James Mill, under the title of " Direct taxes, which are de- 
signed to fall upon all sources of income," says, " Assessed taxes, 
poll taxes, and income taxes are of this description." — Elements 
of Political Economy, p. 267. 

J. R. McCulloch divides his work on Taxation into two parts: 
Part I, on direct Taxes, and Part II, on indirect taxes; and under 
the head of " Direct Taxes " he treats of " taxes on property and 
income." 

Dr. Lieber, referring to the different modes of levying taxes, 
says : " The first way is direct — to determine from the statement 
of the parties concerned, or from official information, the net 
income of persons. This kind of taxes are called direct." — Encyclo- 
paedia, Americana. 

" Taxes are either direct or indirect. A direct tax is one which 
is demanded from the very persons who it is intended or desired 
should pay it. Direct taxes are either on income or expenditure. 
. . . Most taxes on expenditure are direct, being imposed not on 
the producer or seller of an article, but immediately on the con- 
sumer. . . . The window tax is a direct tax on expenditure, so 
are taxes on horses and carriages."— -John Stuart Mill, Political 
Economy, vol. ii. 

When Sir Robert Peel brought forward his plan for an income 
tax in 1842, he said: "Indirect taxation has reached its limits, 
and can no longer be relied on. My plan is this, to levy an income 
tax," etc. — Parliamentary Debates, Iri, 428; Ann. Peg., 18J f 2, 7', 
73. And Lord John Russell said in reply: "To resort to the des- 
perate measure of an income tax in such circumstances is nothing 
less than to proclaim to the world that your resources are ex- 
hausted, that indirect taxation has reached its limits." etc. — Par- 
liamentary Debates, Ivii, 86, 147; Ann. Reg., 1842, 77, 79. 



INCOME TAX OF 1894. 365 

effect that the income tax was a direct tax, and any method 
of levying it other than that prescribed by the Constitution 
— i. e., according to population — was unconstitutional, the 
Government would have been forever practically deprived 
of an effective instrumentality for raising revenue which 
might be most desirable in cases of emergency. Immense 
sums which had been paid under protest as income taxes 
would also have been pressed for repayment in case the 
decision had been otherwise, to the serious embarrassment 
of the national Treasury. 

In harmony with the above decisions, the United States 
Supreme Court has decided that neither taxes on distilled 
spirits (United States vs. Singer, 15 Wall., Ill), nor suc- 
cession duties on the devolution of title to real estate 
(Scholey vs. Eew, 23 Wall., 331), nor taxes on the notes 
of State banks (Veazie Bank vs. Fenno, 8 Wall., 533), nor 
taxes on the receipts of insurance companies from premiums 
and assessments (Insurance Company vs. Soule, 7 Wall./ 
433) are direct taxes; but that all such taxes are imposts 
and excises, and subject, therefore, to the requirement as 
to uniformity, but not subject to the requirement of appor- 
tionment. 

Important, interesting, and instructive from a consti- 
tutional, legal, and economic point of view, as was the ex- 
perience of the United States in respect to direct taxation, 
prior to 1894, the sequel of events and experience in respect 
to this question and its involved problems has been no less 
important and worthy of narration. 

By an enactment of Congress, August 18, 1894, estab- 
lishing an income tax for the United States, a tax of two 
per cent was imposed on the gains, profits, and income of 
persons derived from any kind of property, including rent 
and the growth and produce of lands, and profits made 
upon the sale of land if purchased within two years. Every 
element that could make real or personal property a source 
of value to an owner was taxed. An excise duty was also 
imposed upon income derived from any profession, trade, 
employment, or avocation. The tax upon persons gen- 
erally was not upon their entire income, but on the excess 
over and above the sum of $4,000. All persons having in- 
comes of $4,000 or under were exempt. The whole burden 
of the tax, it was estimated, would fall on less than two 



366 THE THEORY AND PRACTICE OF TAXATION. 

per cent of the population of the country. That the Gov- 
ernment practically conceded that such a feature of the 
act was pre-eminently class legislation is evident from the 
following extract from a statement made in a brief by the 
Attorney General of the United States : " Congress/' he 
says, " has adopted as the minimum income for the pur- 
pose of taxation the limit of $4,000. This limit may be 
said to divide the upper from the lower middle class, finan- 
cially speaking, in the larger cities, or to divide the middle 
class from the wealthy in the country districts." * 

As might have been expected, the provisions of this 
enactment, which could not be fairly considered pertinent 
and relevant to a just and equitable system of income 
taxation, occasioned much dissatisfaction among business 
men and the financial authorities of the country generally; 
and measures were at once initiated to test before the 
proper legal tribunals — i. e., the courts of the United 
States — the constitutionality of the statute. The most 
important and immediate representatives of this action 
were the Farmers' Loan and Trust Company and the Con- 
tinental Trust Company, of Few York — two of the largest 
trust companies in the United States. It is also worthy 
of note in this connection that the above-named companies, 
before taking any steps to test the validity of the act in 
question, complied with all its provisions; no collector of 
internal revenue or any public officer of the United States 
having been made a party, or any injunction sought from 
the courts to restrain the collection of the tax. 

The basis of action of the above-named parties, as rep- 
resented by some of the most eminent members of the legal 
profession in the country, f was substantially as follows: 
Each of them, and a large number of other like organiza- 
tions — insurance companies, saving banks, and trusts — hold 
as investments of capital stock, earnings, and profits, and 
as trustees for minors, widows, individuals, copartnerships, 
and corporations too numerous to mention, resident in the 
United States and elsewhere, large amounts of real estate, 

* Brief on behalf of the United States (by Mr. Olney), p. 85. 

f Messrs. Joseph H. Choate, Clarence A. Seward, William D. 
Guthrie, Benjamin H. Bristow, David Wilcox, and Charles Steele. 
For the United States, James C. Carter and Richard Olney, the 
Attorney General. 



STATES PROTECTED FROM EXACTIONS. 36? 

situated in the various States of the Federal Union, and 
amounting in aggregate value to hundreds of millions of 
dollars. The rents and income of this real estate, also 
annually amounting in the aggregate to large sums, are col- 
lected and received by the above-mentioned organizations, 
and held by them in their various fiduciary capacities. 

The first point of importance under such a state of 
affairs to which attention is asked is, that taxes levied or 
laid by the Federal Government are recognised and ad- 
mitted (in virtue of repeated decisions and assumptions 
of the United States Supreme Court) to be typical forms 
of direct taxation, and as such under a clear and care- 
fully worded provision of the Federal Constitution must 
be apportioned among the several States according to their 
respective population.* On this point, therefore, there 
could obviously be no legal contention. 

It is now well recognised that this provision of the Con- 
stitution, after full discussion and careful wording on the 
part of its framers, was adopted in order to protect to the 
States, which in entering into union were surrendering to 
the prospective Federal Government so many sources of 
income, the power of direct taxation, and so preclude a 
combination of States from exacting tribute from other 
States, f 

* " Representatives and direct taxes shall be apportioned among 
the several States which may be included within this Union ac- 
cording to their respective numbers." — Constitution of the United 
States, Article I, section 2. 

f " The founders anticipated that the expenditure of the States, 
their counties, cities, and towns, would chiefly be met by direct 
taxation on accumulated property, while they expected that those 
of the Federal Government would be for the most part by indirect 
taxes; and in order that the power of direct taxation of the Gen- 
eral Government should not be exercised except on necessity, and 
when the necessity arose should be so exercised as to leave the 
States at liberty to discharge their respective obligations, and 
should not be so exercised unfairly and discriminated as to par- 
ticular States or otherwise by a mere majority vote, possibly of 
those whose constituents were intentionally not subjected to any 
part of the burden, this qualified grant was made. Those who 
made it knew that the power to tax involved the power to destroy, 
and that the only security against the abuse of this power is 
found in the structure of the Government itself. In imposing a 
tax the Legislature acts upon its constituents. This is in general 
a sufficient security against erroneous and oppressive taxation, 



THE THEORY AND PRACTICE OF TAXATION. 

The next point of contention in order of importance in 
the case as presented to the United States Supreme Court 
was, Did the provisions of the income-tax act of 1894, im- 
posing a tax of two per cent upon the gains, profits, and 
income derived from all kinds of property — including rent 
and the gains and profits accruing from the growth, profits, 
or sale of land — involve and create a tax which must neces- 
sarily be deemed a direct tax on real estate (land), and 
which not being apportioned (levied) according to the 
provision of the Constitution render the entire act impos- 
ing an income tax unconstitutional and void ? 

The precise or original question involved, it was ad- 
mitted, was one on which the Federal Government had 
really never been heard,* and was first brought before the 
United States Supreme Court for a hearing and adjudica- 
tion in April, 1895. On that occasion the court held that 
the provisions of the act of August 15, 1895, were uncon- 
stitutional, so far " as they purport to impose a tax on the 
rent or income of real estate." It was, however, equally 
divided on the following questions, and expressed no opin- 
ion in regard to them : 

(1) Whether the void provisions invalidated the whole 
act; (2) whether, as to the income from personal property 
as such, the act is unconstitutional as levying direct taxes; 
(3) whether any part of the tax, if not considered as a 
direct tax, is invalid for want of uniformity. 

The court, early in its history, adopted the practice of 
requiring, if practicable, constitutional questions to be 
heard by a full court, in order that the judgment in such 
cases might, if possible, be the decision of the majority 
of the whole court. And as the court was not full, at the 
first hearing in April, and as four judges did not concur 
in the opinion then rendered, a rehearing was granted by 
the court in the month following (May 6th, 7th, 8th) ; in 



and they retained this security by providing that direct taxation 
and representation in the lower House of Congress should be ad- 
justed on the same measure." — Chief -Justice Fuller. 

* None of the previous decisions of the court " discussed the 
question whether a tax on the income of personalty is equivalent 
to a tax on that personalty; but all held real estate liable to 
direct taxation only so as to sustain a tax on the income of realty 
on the ground of being an excise or duty." — Chief-Justice Fuller. 



ARGUMENT FAVORING TAX. 369 

the announcement of which the Chief Justice remarked that 
" the importance to the Government of the new views of 
its taxing power can hardly be exaggerated." 

In advocating the constitutionality and rightfulness of 
the provisions of the income tax of 1894, the then United 
States Attorney General, Hon. Eichard Olney, on behalf of 
the Government, made in part the following argument : 

" What is this " (contested) "tax in its true value and 
essence ? It is an assessment upon the taxpayer on account 
of his money-spending power as shown by his revenue for 
the year preceding the assessment. It is not a property 
tax in any sense or of any sort. Yet this is the sort of 
tax which is called a tax on real estate for no other reason 
than that last year's rents form a part of the yardstick by 
which this year's money-spending capacity is measured ! 
A greater error, I submit, could not easily be justified. 
My Lord Coke is quoted to the effect that a grant in fee 
of the profits of land passes the land itself. Other cita- 
tions are always interesting, and state a rule of law which is 
indisputable and of universal acceptance. But what is their 
relevancy to the case in hand ? They relate to grants taking 
effect in future — to grants taking effect from the date or 
delivery of the deed, or from the probate of the devise, and 
carrying all after-accruing rents as a matter of course. But 
what this case is concerned with is rents that have not only 
become due, but have actually been received by the land- 
lord. Does any one pretend that rents thus received would 
pass by a grant of the estate that has yielded them? Of 
course not, and why? Because, by falling due and being 
collected, they have become severed from the realty, and 
have become personal property — money in the landlord's 
pocket, like any other money. Nothing is gained, however, 
by belittling or evading an argument, and I have no in- 
tention of doing either. The strength of the plaintiff's 
claim is in the proposition that the value of land is in its 
use; that rents are the pecuniary equivalent of the use, 
and that, therefore, to tax rents is in substance and effect 
to tax the land itself. This is what may be called a fetch- 
ing proposition. How much truth is there in it, and how 
much of applicability to the present case? There is this 
much of truth in it : that a tax upon rents to become due — 
to accrue in the future — may well be deemed a tax on the 



370 THE THEORY AND PRACTICE OP TAXATION. 

estate itself. Such accruing rents are like growing crops, 
an inseparable part of the land, and whatever is a charge 
upon them is necessarily a charge upon the land. But the 
proposition stated has no application whatever to the pres- 
ent case, because the tax it has to do with is a tax in 
respect to rents already due and collected, and in all prob- 
ability either spent or transformed into other tangible prop- 
erty. How can a tax in respect to such rents be said to be 
a tax upon the real estate producing them? When they 
become due and are paid, just as when crops are harvested ; 
when either process is complete, a new and distinct item 
of property comes into existence, and the landlord's prop- 
erty realizes a corresponding accretion." 

In rejoinder the counsel for the appellants maintained 
that under the income-tax enactment in question (i. e., of 
August 28, 1894) a tax was imposed upon income " de- 
rived not merely from business, but also expressly upon 
that derived from property, and therefore directly upon 
the property producing the income, whether real or per- 
sonal." Notably is this the case with a tax upon " rents " 
and the " growth and produce of land." It taxes every 
element of value of the land which the owner can realize 
from third parties. It must be clear that a tax upon what 
gives the land value is a tax upon the land itself. In the 
words of Hamilton, " What in fact is property but a fiction 
without the beneficial use of it ? " In many cases, indeed, 
the income or annuity is the property itself. As one of the 
justices said in the Hylton case, " Land, independently of 
its produce, is of no value." It scarcely needs argument to 
establish that anything which affects every element that 
gives an article its value, in the eye of the law, affects di- 
rectly the article itself. In illustration of this many de- 
cisions, mainly of the United States Supreme Court, were 
cited, of which the following are examples : 

In Brown vs. Maryland, 12 Wheaton, it was held by the 
United States Court that a tax on the occupation of an 
importer is the same as a tax on imports, and was there- 
fore void. 

In Weston vs. Charleston, 2 Peters, it was held that a 
tax upon the income of United States securities was a tax 
upon the securities themselves, and equally inadmissible. 

In Almy vs. California, 24 Howard, it was held that a 



REJOINDER AGAINST THE TAX. 371 

duty on a bill of lading was the same thing as a duty on 
the article which it represents. 

In Cook vs. Pennsylvania, 97 United States, it was held 
that a tax upon the amount of sales of goods made by an 
auctioneer was a tax upon the goods sold. 

In Eailroad Company vs. Jackson, 7 Wallace, it was 
held that a tax upon the interest payable upon bonds was a 
tax not upon the debtor, but upon the security, the bonds. 

In Philadelphia Steamship Company vs. Pennsylvania, 
122 United States, it was held that a tax upon the income 
•received from interstate commerce was a tax upon the 
commerce itself, and equally unauthorized. 

" If a man seized of lands in fee by his deed granteth 
to another the profit of those lands to have and to hold to 
him and his heires, the whole land itselfe doth passe; for 
what is the land but the profits thereon?" (Coke upon 
Littleton, the accepted rule of law in every court in Eng- 
lish Christendom.) 

A devise of the interest or of the rents and profits is a 
devise of the thing itself out of which that interest on those 
rents and profits may issue (Patterson vs. Ellis, 11 Wen- 
dal). 

It seems clear, therefore, that the weight of judicial 
opinion as expressed in the judgments of the highest courts, 
both in the United States and England, was to the effect 
that the tax imposed under the United States act of August, 
1894, on the income from the use, profits, and sales of land 
was a direct tax, and, not being apportioned in accordance 
with a strict provision of the Federal Constitution in respect 
to the levy and collection of said tax, was necessarily un- 
constitutional and void.* 

Apart from the leading element in this celebrated case, 
and on which the final decision of the court was mainly 
based, was that provisions in the act of 1894 establishing 

* The following rejoinder by one of the counsel for the appli- 
cants (Mr. Choate) to a portion of the argument made by the 
Attorney General (Mr. Olney), and before cited, is pertinent and 
instructive, as respects the much-vexed question as to the situs 
of property for the purpose of tax administration: 

" The Attorney General says, ' When a man has got the money 
in his pocket it is no longer rent.' One thing I would say about 
that is, that if you are going after rent as money, the tax is on 
personal property, and should be apportioned. But the. answer 



372 THE THEORY AND PRACTICE OF TAXATION. 

an income tax, being in the nature of direct taxation, and 
the same being not assessed in accordance with the require- 
ments of the Federal Constitution, were void in effect. 
The constitutionality of the entire act was also questioned 
on the ground that it violated the constitutional require- 
ments that " all duties, imposts, and excises shall be uni- 
form throughout the United States." Thus, for example, 
it taxed the income of certain companies and associations, 
" no matter how created or organized," at a higher rate 
than the income of individuals and partnerships derived 
from precisely similar property; and denied to individuals 
deriving their income from shares in certain corporations 
and associations the benefit of the exemption of $4,000 
granted to all other persons interested in similar property 
and business, and the like. These features of the act of 
1894, although constituting most important and instruc- 
tive contributions to the general subject of " taxation," are 
not, however, so pertinent to the immediate subject under 
consideration as to require at present any extended dis- 
cussion. 

Conclusion". — As the result of the hearing and dis- 
cussions involving the constitutionality of the income-tax 
statute of August 28, 1894, the United States Supreme 
Court, a majority of its members concurring, gave judg- 
ment as follows : 

1. We adhere to the opinion already announced, 
that taxes on real estate being indisputably direct 

is that the tax does not go after the rent as money in the tax- 
payer's pocket. The act of 1894 (section 27) specifies the rents 
as a cardinal part and element of this income return, and every 
man who goes up to make return has to state under oath what 
rent he got last year. This fiction — this difference between the 
name and the thing, between the substance and the shadow, urged 
by the Attorney General — is that, though you can not tax rent, 
you can tax the money in the owner's pocket received from rent. 
If there is one factitious argument, one pretence of a reason, one 
attempt to make a distinction without a difference that this court 
has uniformly stamped upon with all its might, it is just that. 
The court has repeatedly decided that such an argument is wholly 
unsound. What did the court mean, in Brown vs. Maryland, when 
it held that a tax on the occupation of an importer is the same 
as a tax on imports and is therefore void? It is the source, • the 
substance, that the act strikes at, that the court always looks to, 
and always has looked to, in any form and case that has ever 
come before it until now." 



DECISION OF THE COURT. 373 

taxes. taxes on the rents or income of real estate 
are equally direct taxes. 

2. We are of the opinion that taxes on personal 
property, or on the income of personal property, 
are likewise direct taxes. 

3. The tax imposed by sections twenty-seven to 
thirty-seven, inclusive, of the act of 1894, so far 
as it falls on the income of real estate and of per- 
sonal property, being a direct tax within the mean- 
ING of the Constitution, is therefore unconstitu- 
tional AND VOID, BECAUSE NOT APPORTIONED ACCORDING 
TO REPRESENTATION. ALL THOSE SECTIONS, CONSTITUT- 
ING ONE ENTIRE SCHEME OF TAXATION, ARE NECESSARILY 
INVALID. 

A brief word more is desirable to complete the record 
of the curious and instructive experience of the United 
States in respect to the enactment and administration of 
direct taxation. 

Theoretically an almost ideal system, especially if made 
universal in its incidence and exclusive of all indirect 
taxes, its application under a dual form of government, 
such as exists in the United States, with a practical denial 
of resort to arbitrary action in collection, such as exists in 
all despotic governments, and an accepted rule that neither 
the " nation " nor the forty-five " States " shall tax an 
instrumentality of the other, will be necessarily most per- 
plexing. These and other like circumstances, more espe- 
cially the inequalities and inefficiencies contingent on the 
act of 1861, therefore, render it almost certain that direct 
taxation will not hereafter be resorted to by the Federal 
Government until all other means of relief for its treasury 
have been exhausted. With the decision of the United 
States Supreme Court in 1896 against the taxation of land 
incomes remaining unimpaired, as it probably will be 
unless the Federal Constitution is practically reconstructed, 
the enactment by Congress of another income tax which 
will not reach more than half the incomes designed to 
be reached, will probably not be attempted. When it is 
also considered that it will be an impossibility to separate 
the part of incomes of great corporations which they derive 
from real estate, when they necessarily use real estate in 
common with other property in order to derive any income, 



374 THE THEORY AND PRACTICE OF TAXATION. 

the enormous expense and interminable litigation contin- 
gent on any attempt on the part of the Government to 
enforce such a law will be almost beyond estimate. 

" Eeal " and Personal Taxes. — Direct taxes are also 
spoken of, and in fact classified, as real and personal taxes. 
"Real" taxes (Latin res, thing), or taxes on realty, as is 
the general expression, are taxes on property — generally 
on things naturally characterized by immobility — without 
reference to the pecuniary condition of the owner, and hence 
without taking his debts into account. A tax on land or 
real estate — houses and land — is a typical tax on realty; 
and a tax legally assessed upon such property rests, or is 
a lien upon it, irrespective of its ownership. 

Business taxes are regarded as real taxes, as they are 
taxes on pursuits or occupations rather than on persons. 
The same is true of taxes on capital and the rental value 
of land or buildings.* The restriction on the levy of direct 
taxation imposed by the Constitution of the United States 
on the Federal Government does not apply to the States. 

Personal taxes are taxes on persons. A poll or " capi- 
tation ■" or " head " tax, implying a uniform payment from 
every poll or head of some portion or all the population of 
the State, would be a typical personal tax. Strictly speak- 
ing, therefore, a personal tax can be no other than a poll 
tax levied under the above conditions. What are usually 
called personal taxes are taxes assessed or rated to a per- 
son, not as in the case of a poll tax because he is a person 
or citizen, but in virtue of the movable property — furni- 
ture, clothing, vessels, carriages, animals, money at in- 
terest, stocks in corporations, bonds, or negotiable instru- 
ments and the like belonging to him. It is the individual 
that the law regards as the objective rather than his per- 
sonal property — which may not be tangible or visible — on 
enforcing the tax; the property being resorted to for the 
purpose of ascertaining the amount of tax which its owner 
should pay. An income tax is regarded as a personal tax 
because it is assessed on the income that gathers about a 
person irrespective of its source — rents, interest, profits, 

* " Real estate for the purpose of taxation shall include all 
lands within this State, and all buildings or other things erected 
on or affixed to the same." — Statutes of Massachusetts. 



REAL AND PERSONAL TAXES. 375 

salaries, and the like. A tax on land is a tax on realty, 
while a tax on a mortgage is a personal tax, which is 
equivalent to affirming that the former is a thing, while 
the latter is only the representation or shadow of the 
thing. 

In levying taxes on realty the owner, as a rule, is not 
allowed to offset or reduce its valuation by the amount of 
his outstanding indebtedness; but in the case of the taxa- 
tion of personal property such an offset is generally per- 
mitted, on the ground that a man should be taxed only 
upon what he owns and not upon what he owes; and even 
when not allowed by law, the circumstance of indebtedness 
is almost always taken advantage of by persons assessed, 
for reducing valuation in making returns to the tax offi- 
cials of the value of their property. In assessing an in- 
come tax a deduction is allowed for interest paid on mort- 
gages, and such business expenses as lessen income. Per- 
sonal expenses, as house rent, cost of living, and the like, 
can not, on the other hand, be properly deducted from 
income before it is taxed, because income is sought for 
and exists for the purpose of defraying such expenditures. 
By the income-tax law of the United States, enacted in 
1865, and also in 1894, deductions were allowed from the 
amount of taxable income, of all taxes paid within the 
year, of all interest paid on indebtedness, and the rent 
or rental value of any homestead actually occupied by the 
taxpayer. 

One of the most curious features of recent tax experi- 
ences in the United States has been the extent to which 
this practice, or right of reducing valuations of personal 
property for taxation by debts, has been made the oppor- 
tunity for evading taxation. Thus, by the very structure 
of the Federal Government, its various instrumentalities, 
as heretofore explained,* are necessarily exempted from all 
taxation by the States of the Federal Union. Recognising 
this, it has been the habit of individuals to effect credit 
purchases to a greater or less amount of United States 
securities a short time previous to the time fixed for tax 
returns or valuation, and then offsetting the debts thus in- 
curred against valuation, evade the taxation on their per- 

* See Chapters XI and XII. 



376 THE THEORY AND PRACTICE OF TAXATION. 

sonal property to which they would otherwise be sub- 
jected.* And for such moral wrong there would appear 
to be no legal remedy on the part of the State, except by 
the commission of a greater wrong — namely, the prohibi- 
tion of the offsetting of all debts in tax valuations ; or, what 
is the same thing, the imposing of a discriminating bur- 
den of taxation upon persons who, for any cause, may be in 
debt — a denial of equity which public sentiment in every 
free country will not long tolerate. A further proof and 
illustration of this averment may be found in the fact that 
years ago the Constitution of Ohio provided that credits, 
or evidences of indebtedness, should be subject to taxation 
by a uniform rule ; and the Supreme Court of Ohio subse- 
quently decided that this did not allow any offset of debts 
owed against credits owned. But popular opinion was so 
adverse that by common consent this clause of the Consti- 
tution, as interpreted by the court, was entirely disregarded 
in making up tax valuations. 

In old English history the division of property into real 
and personal was wholly unknown ; and all laws regulating 
this species of property, with a view to taxation or inherit- 
ance, are of comparatively modern origin, f It is also in- 

* When the Federal Government effected in November, 1894, 
a loan for $50,000,000, a premium was paid on no inconsiderable 
amount for the privilege of purchase, or investment, so large as 
to net to the purchaser an abnormally low rate of interest — 2.5 
per centum. The explanation of this action was that, apart from 
the recognised value of an unquestionable security, the investment 
carried with it an exemption from a national income tax of two 
per cent, as well as from State and municipal taxation; so that 
the rate of interest accruing to the purchaser was not as low as 
it might have seemed to be, and by the holders and managers of 
trust properties was generally regarded as satisfactory. 

t The first authorization of local taxation in England was for 
the maintenance of the poor, and occurred in the reign of Eliza- 
beth. At that time it seems to have been assumed that there 
was no personal property in the kingdom capable of being assessed, 
and that real property was alone valuable property. Hence it was 
enacted (43 Elizabeth, cap. 2) that overseers should be appointed 
who were to raise, by taxation of every inhabitant, parson, " and 
of every occupier of lands, houses, tithes impropriate, propitiations 
of tithes, coal mines, or salable underwoods in the said parish," 
moneys for the relief of the poor. No mention was made of per- 
sonal property, and it is probable that every kind of property 
then known was mentioned in the act. When fresh burdens were 
necessary the principle adopted by the act of Elizabeth was con- 



LEGAL DISTINCTIONS. 377 

teresting to note that probably full one fourth of all the 
so-called personal property of this country — namely, all 
railroad, steamship, telegraph, telephone securities — did 
not have an existence fifty years ago. 

As is the case with direct and indirect taxes, the line 
of demarcation between real and personal property, and 
consequently between real and personal taxes, is very in- 
definite, and some very nice and curious points in connec- 
tion therewith have been established by usages, or court de- 
cisions. Thus an apple on the tree is real estate, but when 
fallen upon the ground it becomes personal property. Eun- 
ning water accumulated in a pond is real estate, though the 
owner is not permitted to invest it with the peculiar at- 
tribute of real estate — namely, stability — by permanently 
arresting its flow. In some States the engines, water 
wheels, shafting, and even belts of factories are real estate, 
while looms and lathes are personal property. Stone in the 
quarry is real estate, but when thrown out by a blast and 
made ready for market it becomes personal property. Hop- 
poles, not standing, have been decided to be real estate, 
but wood cut and corded for sale is personal property. A 
statue exhibited for sale in a workshop is personal prop- 
erty, but when placed upon a permanent foundation (al- 
though not fastened to it), as an ornament in front of a 
house, has been held to be a part of the realty. Chairs in 
a theatre and screwed to the floor, as they can not stand 
alone, are considered a part of the realty; but gas fixtures 
and mirrors, made to order for the house, and attached to 
the freehold, but removable without injury thereto, are not 
deemed a part of the realty. Before emancipation in the 
United States, slaves, who by the Federal Constitution 
were recognised as persons, were in several of the States 
declared by law to be real estate ; * and in one State of the 
Union, Wisconsin, the one species of property which is espe- 
cially typical of mobility, and is of no value apart from its 
capability of motion, namely, the rolling stock of railroads, 

tinued, without much inquiry or opposition, and owners of per- 
sonalty have remained exempt from taxation, although personal 
property has gone on increasing until its value has become much 
greater than all the real property of the kingdom. 

* In American colonial days slaves were regarded as belonging 
to the land, and figured in tax valuations as real property. 
25 



378 THE THEORY AND PRACTICE OF TAXATION. 

has been by law made real estate. Shares in the national 
debt of France, as well as stock in the Bank of France — in- 
strumentalities which in the United States would be re- 
garded as personal property in its most typical form — -may 
by French law be made real estate, and as such be admin- 
istered on. 

Some years ago the following curious experience oc- 
curred in one of the New England States : A person rented 
a farm, and on the expiration of his lease attempted to 
remove from the estate the manure which had accumulated 
during his holding, assuming that he had the right to it 
as personal property. The owner of the farm, on the other 
hand, forbade the removal of the manure, on the ground 
that it was real estate, and so a part of the farm. The case 
found its way into the courts, and on its trial the lessee 
and defendant, who appeared for himself, attempted to sub- 
stantiate the legality of his proceedings in the following 
manner: Addressing the judge after the facts in the case 
had been established, he asked, " Was the hay in the barn 
personal property ? " Judge : " Certainly/ 7 Lessee : " Were 
the horses and cattle personal property ? " Judge : " With- 
out dispute." Lessee : " Then will your Honour please to 
tell me how personal property can eat personal property and 
produce (dung) real estate?" The decision was never- 
theless in favour of the owner of the farm, or the plaintiff. 
Subsequently the courts of New York decided that manure 
accumulated in connection with a livery stable, not being 
an agricultural product pertaining to a farm, was not real 
estate but personal property. 

In a case in the State of Tennessee, where a person who 
had entered a neighbour's field and removed corn on the 
stalk was prosecuted for larceny, the court held that the 
offence was not larceny, which is the unlawful taking and 
carrying away of personal property, but trespass, inasmuch 
as the corn not severed from the ground was real estate, 
but would have been larceny if the corn had been gathered 
or disconnected from the ground previous to its taking. 
Thereupon a bill was introduced into the Legislature of 
Tennessee to make it a felony to steal corn from a field 
under any circumstances. 

From these illustrations it seems obvious that the dis- 
tinction between real and personal property and real and 



DEFINITIONS OF TAXES. 379 

personal taxes is, to a very great extent, an artificial and 
not a natural distinction. 

The following are some of the other terms used to desig- 
nate particular forms of taxation, the meaning and tech- 
nical application of which may not be readily apparent : 

A franchise tax is a tax on a franchise, or on a right 
granted by a State to a corporation or association to exer- 
cise certain privileges. In fact, a franchise is a privilege, 
and in most cases it is an exclusive privilege, and has an 
actual value largely disproportionate to the amount of 
capital invested by the company or corporation upon which 
it has been conferred.* It has been held by the courts that 
a franchise tax is not a tax on capital or on real estate, 
but on privilege, and does not exclude additional taxation 
on any property covered by the franchise. 

The terms imposts and " customs " (Latin " consue- 
tudines") are generally understood to mean indirect taxes 
on the importation of commodities, while the term duty 
is more properly applied to a tax upon exports. 

The origin of all these terms is obscure and involves 
some interesting features in English history. It appears 
certain that they were in the first instance applied to ex- 
actions on trade generally, and not, as was finally the case, 
on imports and exports exclusively, and were in use before 
indirect taxes on personal property were recognised in Eng- 
land. At the outset and for a long period they were also not 

* The following is a case in point, derived from actual experi- 
ence: A street railway company in a city of the United States 
reported the gross earnings of the corporation for 1891 at $1,188,000. 
Its net earnings were $400,000, or nearly six per cent on a capi- 
talization of $7,000,000. Its city property tax was only $11,000, 
or $2.10 on $500,000. It is evident, therefore, that the value of 
the capital of this corporation was due largely to the value of 
its franchise. 

The value of a franchise is an eminently proper subject for 
taxation, though it is not commonly so regarded. The Supreme 
Court of Pennsylvania, in a recent case (1894), has held that 
under the laws of that State it was proper and lawful in ascertain- 
ing the actual value of the capital stock of a corporation (Sus- 
quehanna and Schuylkill Railroad Company) to take into con- 
sideration, as affecting that value, the franchises of the company. 
Franchises conferred by Congress upon a corporation created by 
it, to be exercised within a State, can not be subject to taxation 
by the State without the consent of Congress. — California vs. Cen- 
tral Pacific Railroad Company. 



380 THE THEORY AND PRACTICE OF TAXATION. 

regarded in the light of taxes, but rather as dues personal 
to the sovereign, which he had the right to regulate and 
collect independent of any statute, and which carried with 
it the further right to restrain at pleasure the import or 
export of any commodity.* Thus, until the reign of Ed- 
ward II (1272-1307) the right to tax the export of wool 
was exclusively a royal privilege; and the enactment of 
a statute by Parliament in 1275, limiting the amount that 
the king could take in respect to the export of wool, skins, 
and leather — but not denying the privilege — is regarded 
as the first legal foundation in England of the customs 
revenue. The controversy between the king and Parlia- 
ment over customs duties went on, however, with varying 
phases until finally settled in 1682 ; and from these circum- 
stances, and also from the fact that customs and duties are 
unseen by those who finally bear their burden because 
they are embodied in the prices of commodities, has pos- 
sibly come about the curious idea that tariffs, or taxes on 
imports, are not taxes on any one or are any burden on 
property, but rather some sort of a business contrivance for 
the raising of revenue, and, if they are taxes at all, then 
that the foreigner pays them. 

The term impost is a general expression for any tax, 
duty, or tribute, but is seldom now applied to any but in- 
direct taxes on imports. 

The term excise, though used in the Constitution of the 
United States, is now almost entirely restricted in use to 
the tax system of Great Britain; and even there has ac- 
quired a far different meaning and application from what 
it possessed originally. Thus the term was first applied in 

* It is a curious fact that the old idea that imposts and cus- 
toms, or the right to impose exactions on trade, were, when first 
imposed, not regarded in the light of taxes but as dues personal 
to the sovereign, which he had the right to regulate and collect 
independent of any statute, has recently found reassertion and 
indorsement in the United States Senate by a leading member 
of that body from New England, that he did not regard the levy- 
ing of imposts or customs dues on imported commodities as in 
the nature of taxes; for, if such levies on trade are not taxes, 
they are simply exactions of a despotic form of government, repre- 
sented immaterially either by one man or a collection of men. 
and for whom or for which no rightful claim of representing or 
being a government by the people or for the people can be pre- 
ferred. 



EXCISE DUTIES. 381 

England to taxes on manufactured commodities produced 
and consumed in the kingdom, as beer, cider, soap, glass, 
paper, and the like, and in contradistinction to duties or 
customs on commodities of foreign manufacture and im- 
portation; and this distinction is still officially recognised 
in the fact that special care has always been taken in all 
British legislation on this subject to make the excise tax 
as nearly equal as possible to the customs imposed on the 
same kind of imported commodities. The term is sup- 
posed to find its origin also in the circumstance that it 
was originally the practice to cut off, or " excise," portions 
of the goods assessed, and take them away in payment of 
the tax in kind. The first attempt to impose an excise tax 
in England was in 1525, and failed, as both Houses of 
Parliament concurred in opinion that it was unconstitu- 
tional. After the Eestoration, or under Charles II, the 
attempt was successfully renewed, and the taxes under it 
were very curiously divided into two classes, and the re- 
ceipts from the same made personal to the crown — namely, 
the hereditary excise, so called because granted to the 
crown forever in consideration or recompense for the aban- 
donment by the crown of certain perquisites and privileges ; 
and the temporary excise, the receipts of which were only 
granted to the sovereign for life. The tax was, however, 
always unpopular in England, being regarded as contrary 
to the spirit and principles of a just government, and 
on the accession of William and Mary it was greatly modi- 
fied and reduced; and it is somewhat curious that a term 
having such an origin and history should have found a 
place in the Federal Constitution and be thus recognised 
as a legitimate form of taxation under a free government. 
In Great Britain at the present time the only commodities 
on which taxes designated as excise are assessed are spirits, 
malt, fermented liquors, and chicory, or other substitutes 
for coffee. But in addition the British system classifies 
under the head of excise its taxes on railways and a few 
other minor subjects. 

The late United States Justice Miller defined an excise 
tax as " one which is assessed upon some article of prop- 
erty or money or something which is exhausted in the use. 
It is one which from its essence and nature must be paid 
in fact by the buyer, or the last man who buys or uses the 



382 THE THEOffcY AND PRACTICE OF TAXATION. 

property, because, whoever has it at the time when the tax 
is levied upon it adds that amount to the selling price when 
he comes to dispose of it until the property is consumed. 
It is a tax upon consumption." * 

In the United States all Federal taxes that are not 
levied under the tariff and navigation laws are classified 
under the general designation of " internal revenue taxes/' 

The term toll, formerly in extensive use, and signifying 
duties on imports and exports, is now nearly obsolete, and 
restricted almost exclusively in meaning to the charges for 
permission to pass over bridges, ferries, and roads (turn- 
pikes) owned by the parties imposing them. The courts 
have held that railroad fares can not be regarded as tolls. 

A word in very common use in English history, espe- 
cially when reference is made to fiscal topics, is that of 
subsidy; but its former and present signification are very 
different. Under the earlier English kings, when the in- 
adequacy of the hereditary or peculiar revenues of the 
crown to defray its expenditures compelled the monarch 
to ask pecuniary aid of his subjects, the grants that were 
made were known as " tenths," " fifteenths," or the like, 
according as the exaction of such percentages of certain 
properties were authorized, and also as " subsidies " and 
" benevolences." The peculiarity of all such grants was 
that they were always special and extraordinary, and had 
no place in any regular system of taxation. Thus, of the 
reign of Henry VIII it is recorded that Parliament granted 
subsidies occasionally, but the king, having found a readier 
way of obtaining money, did not need them — the readier 
way having been the confiscation of all the property of the 
religious houses, which included more than half of all the 
land of the kingdom; and of Elizabeth, that during the 
forty-five years of her reign Parliament granted twenty 
subsidies and thirty-nine fifteenths, the balance of needed 
supplies being obtained from crown lands — as the duchy 
of Lancaster — and other hereditary revenues. Under the 

* Lectures on the Constitution of the United States, p. 238. 
" What is the natural and common or technical or appropriate 
meaning of the words duty and excise it is not easy to ascertain. 
They present no clear and precise ideas to the mind. Different 
persons will annex different significations to the terms." — Pater- 
son, J., Eylton vs. U. 8., 3 Dallas, 171, 176. 



SUBSIDIES. 383 

Commonwealth regular taxes on lands and other forms of 
property were for the first time instituted in England, and 
these proved so productive that the old methods of per- 
centages, subsidies, and benevolences were discontinued, and 
with their nomenclature disappeared from English fiscal 
history. 

At the present time the term subsidy, in place of desig- 
nating as formerly a grant obtained by the Government 
from private interests, has come to mean a grant obtained 
from the Government in aid of private enterprises which it 
is claimed should be encouraged by the state in the interest 
of the general public, as, for example, the fostering of 
shipbuilding and ship-using, and the cultivation and manu- 
facture of certain commodities. But this modern use of 
the word " subsidy " can not, it is said, be referred back 
to any earlier period than the year 1840. 

Of the many other terms and words used in connection 
with the subject of taxation, there are very few that seem 
to require special explanation, and the majority of these, 
although formerly in extensive use, have now become obso- 
lete and passed into history — as, for example, g alette, the 
term given in France to the tax on salt; corvee, a compul- 
sory contribution of labour; and tattle, or taillage, a tax 
on the supposed profits of agriculturists, and the like. The 
characteristic of almost all modern tax words or terms is 
indefiniteness ; and probably in no other department of 
knowledge is there such a lack of exactness in respect to 
definitions. This to a student may seem at first to be a 
factor of no little embarrassment, and as assimilating him 
to the condition of the man who couldn't see the forest 
because of the multitude of trees; but with the exception 
of the definitions of tax and taxation, this condition of 
affairs really constitutes no obstacle in the way of clearly 
reasoning and determining as to what should be the funda- 
mental principles of taxation. 



CHAPTEE XVII. 

THE EXISTING METHODS OF TAXATION". 
PART I. 

Subjects of Taxation. — The subjects of taxation, to 
use a happy generalization of Justice Field, of the United 
States Supreme Court (Foreign-held Bond Case, 15 Wal- 
lace), " are persons, property, and business. Whatever 
form taxation may assume, whether as duties, imposts, ex- 
cises, licenses, or direct, it must relate to one of these sub- 
jects. It is not possible to conceive of any other, though 
as applied to them taxation may be exercised in a great 
variety of ways." 

With this postulate we are legitimately led up to the 
consideration of the ways or methods by which the State 
or Government, in virtue of its sovereignty, and on the 
ground of necessity, and solely for its support, taxes or 
compels contributions from the three above-enumerated 
subjects, for the purpose of defraying its expenditures. 

Apportionment of Taxation. — This department of 
the subject of taxation, while the most practical and there- 
fore the most interesting, is at the same time the one most 
obscure, and the one about which there is the most striking 
difference of opinion among writers on economic and fiscal 
subjects. The four maxims or canons laid down by Adam 
Smith in his Wealth of Nations, by reason, as he claims, 
of their eminent justice and equality, have obtained such 
world-wide celebrity that they are almost always referred 
to as of unquestionable authority in all discussions of this 
subject, and have been thus characterized by an eminent 
French student and writer (M. Menier) on taxation: 
" When a legislator," he says, " brings forward a new 
scheme for taxation, he is always careful to say that it is 
not in contradiction with even one of these rules; and at 
384 



RULES OF TAXATION. 385 

the same time he never fails to invoke them as authority 
during a debate, even when he is actually scheming to 
transgress them." 

These rules are four in number, and are as follows : 
1. " The subjects of every state ought to contribute to the 
support of the Government, as nearly as possible, in pro- 
portion to their respective abilities — that is, in proportion 
to the revenue which they respectively enjoy under the 
protection of the state." In the observation or neglect of 
this maxim consists what is called the " equality or in- 
equality of taxation." 2. " The tax which each individual 
is bound to pay ought to be certain and not arbitrary. 
The time of payment, the manner of payment, the quantity 
to be paid, ought all to be clear and plain to the contributor 
and to every other person. The certainty of what each in- 
dividual ought to pay is, in taxation, of so great impor- 
tance that a very considerable degree of inequality (I 
believe, from the experience of all nations) is not near 
so great an evil as a very small degree of uncertainty." 
3. " Every tax ought to be levied at the time and in the 
manner in which it is most likely to be convenient for the 
contributor to pay it." 4. " Every tax ought to be so con- 
trived as both to take out and to keep out of the pockets 
of the people as little as possible over and above what it 
brings into the public treasury of the state." 

But although almost universally accepted as the em- 
bodiment of the highest wisdom, the above four maxims 
or canons of Adam Smith have been and are, nevertheless, 
open to some criticism. In the first place, they are so gen- 
eral in their nature and so lacking in any precise rule or 
test for application, that they stand in the light of apho- 
risms ; somewhat as the maxims " Honesty is the best 
policy," " Never put off till to-morrow what can be done 
to-day," etc., to which all respect is always given, except 
the desirable one of practical use in actual cases. In fact, 
the originators of the very worst forms of taxation now 
existing might and probably would plead that their methods 
or practices were based on the ideas of Adam Smith, or 
were as near in conformity to them as was possible under 
the existing circumstances. Again, the first maxim or 
canon embodies two propositions antagonistic to each other, 
and one of which can hardly be considered correct ; namely, 



386 THE THEORY AND PRACTICE OP TAXATION. 

that every citizen should pay taxes for the support of the 
Government in proportion to his ability. For if, as almost 
all authorities are now agreed, taxes are the compensation 
which persons or property pay to the state for protection, 
then it of necessity follows that where there is no protec- 
tion, ability is no just guide for assessment. " Where 
there is no protection," said Judge Story (in the case of 
United States vs. Eice, 4 Wheaton, 276), "there can be 
no claim to allegiance or obedience.' 7 And that Adam 
Smith did not intend to have his first proposition fully 
accepted would seem evident from the circumstance that he 
added to it, and qualified it with these other words, " that 
is, in proportion to the revenue which they [the citizens] 
respectively enjoy under the protection of the state." Mon- 
tesquieu, who wrote at an earlier date, also enunciated 
even more clearly this common-sense and equitable prin- 
ciple, when he said (see Spirit of the Laws) that " the 
public revenues ought not to be measured by the people's 
abilities to give, but by what they ought to give" " And 
what they ought to give," as has been remarked by another 
writer, " can, of course, be only measured by the benefit 
they are to derive." 

Discriminating Taxation. — The proposition that 
" the subjects of every state ought to contribute to the sup- 
port of the Government in proportion to their respective 
abilities " embodies also and inferentially favours the 
policy of discriminating taxation, and finds popular ex- 
pression and justification in the assertion that the rich 
man needs more protection from the state than the poor 
man, has more interests to be guarded, and it is there- 
fore right that he should pay more in proportion to his 
fortune. " It is just," says Sismondi, the Italian econo- 
mist, "that all should support the Government in return 
for the protection it gives to their persons and properties, 
in proportion to the advantages society guarantees to them, 
and the expenses which it incurs on their account." But 
the question is pertinent, to whom or to what class of 
its members does society afford the most protection or 
render the most service? Is there any standard by which 
such proportionality can be even approximately deter- 
mined? To these questions Mr. John Stuart Mill has 
made the following answer: 



DISCRIMINATING TAXATION. 38? 

" It can not be admitted/' he says, " that to be pro- 
tected in the ownership of ten times as much property is 
to be ten times as much protected. Whether the labour 
and expense of the protection, or the feelings of the pro- 
tected person, or any other definite thing be made the 
standard, there is no such proportion as the one supposed, 
nor any other definable proportion. If we wanted to esti- 
mate the degrees of benefit which different persons derive 
from the protection of Government, we should have to con- 
sider who would suffer most if that protection were with- 
drawn; to which question, if any answer could be made, 
it must be that those would suffer most who were weakest 
in mind or body, either by nature or by position. Indeed, 
such persons would almost infallibly be slaves. If there 
were any justice, therefore, in the theory of justice under 
consideration, those who are the least capable of helping 
or defending themselves, being those to whom the protec- 
tion of Government is the most indispensable, ought to pay 
the greatest share of its price; the reverse of the true idea 
of distributive justice, which consists not in imitating but 
in redressing the inequalities and wrongs of Nature. Gov- 
ernment must be regarded as so pre-eminently a concern 
of all that to determine who are most interested in it is 
of no real importance. If a person or class of persons 
receive so small a share of its benefit as make it neces- 
sary to raise the question, there is something else than taxa- 
tion which is amiss, and the thing to be done is to remedy 
the defect instead of recognising it and making it a ground 
for demanding less taxes." 

M. Menier, of France, widely known as a manufacturer 
of chocolate, but who has shown himself to be an economist 
of repute and a most valuable member of the French 
Chamber of Deputies, in a comprehensive treatise on taxa- 
tion (L'Impdt sur le Capital, Paris, 1874; English trans- 
lation, London, 1880) re-enforces the conclusions of Mr. 
Mill respecting the popular theory of discriminating taxa- 
tion by different though not less forcible arguments and 
illustrations, taking as a text the following remark of M. 
Leon Faucher, another distinguished French writer on 
economic subjects : " It seems just that he who, thanks to 
his talents, to his property, or his capital, procures for him- 
self and his family the enjoyments of luxury should pay 



388 THE THEORY AND PRACTICE OF TAXATION. 

to the state a tribute proportionately more considerable 
than he who has only the produce of his daily labour to 
nourish and bring up his family." " To those/' says M. 
Menier, " who do not reflect, nothing seems more simple 
than this proposition. A minimum of wants is spared 
taxation. In proportion as income increases the tax in- 
creases. Let us see the consequences. 

" A principle is or is not. A principle recognised as true 
ought never to be given up, whatever may be its apparent 
dangers. Once admitted, it must be submitted to, followed 
out to the end, and its consequences accepted. If by fol- 
lowing out its consequences we perceive that we are get- 
ting at the absurd, we must return to the principle, and 
subject it again to the touch of observation. There are 
many who content themselves with stopping halfway, not 
daring to advance, and afraid to turn back to discuss the 
principle on which they have long relied. They are the 
inventors of compromises, who adjourn questions instead 
of solving them. 

" But taxation, it is claimed, may be ' wisely progres- 
sive/ I know no more concerning a ( wise progression ' 
than I do about a ' wise addition ' or a i wise multiplica- 
tion/ A progression is or it is not. If it is insignificant, 
then it is a delusion. The inequality it aims at destroying 
subsists intact. If a true progression in taxation is estab- 
lished, here are the results we obtain: We will suppose, 
for example, that the tax ought to be trebled when the 
income is doubled ; then a tax of 10 francs on 100 francs of 
income would rise to 200 francs on 2,000 francs, to 600 
francs on 4,000 francs, to 1,800 francs on 8,000 francs, 
to 5,400 francs on 16,000 francs, to 16,200 francs on 32,000 
francs, to 48,600 francs on 64,000 francs, and to 145,000 
francs on 128,000 francs. I conclude that the principle 
that ends in such a consequence can only be false. What ! 
the tax would one day exceed my fortune ! I should be 
the debtor of the fiscal system that had absorbed more than 
my revenue. Then it would be for my interest not to aug- 
ment it ! I shall have accumulated only for the treasury, 
and the more I acquire the more rapidly I shall be de- 
spoiled. . . . That system may suit Utopians and retro- 
grade people who completely absorb the individual in the 
state, but it will not suit those who, relying on facts, think 



MENIER'S RULES OF TAXATION. 389 

the greatness and wealth of the state ought to proceed from 
the development of individuals. It may suit those who 
seek equality at the basis, but not those who seek equality 
at the summit. The theory of progressive taxation is a 
vestige of the old prejudice that regarded wealth as an 
evil, as a sort of theft from the rest of the country, and 
that it would be equitable to make the rich man atone or 
make reparation for the possession of his fortune and his 
pleasures. In warlike civilizations, where wealth was 
based on violence, it is not difficult to understand the legiti- 
macy of this prejudice; but it finds no warrant in our 
industrial civilization, where all wealth, to be legitimate, 
must be based on the appropriation of natural agents to 
our wants. But the partisans of a wise progression in 
taxation have found means of escaping from the absurdity 
of the above consequence — namely, confiscation. They pro- 
pose that above a certain figure the progression shall stop. 
Under such a system they would favour him who has but 
little money ; but they would favour still more him whose 
wealth exceeds a certain limit. If you have £4,000 a year, 
you pay the maximum of the progression ; if you have more 
than £4,000, the progression vanishes. A principle which 
ends in such consequences does not exist." * 

M. Menier's Rules. — To establish a system of taxa- 
tion which will be equitable and effective without involving 
the principle of progressive or discriminating taxes, M. 
Menier regards the following constructive rules as funda- 
mental : 

1. Taxation should never be laid on circulating capital, 
" since every tax that obstructs circulation impedes produc- 
tion in a geometrical ratio." 2. Taxation should be levied 
on the commodity; never on persons. 3. Taxes should 
never impede the liberty of labour. 4. Every tax ought to 
be levied as cheaply as possible. 5. There should be but 
one sole and single tax — namely, on fixed capital, f 

* See also the destructive criticism in Say, Les solutions demo- 
cratiques de la question des imp6ts. Paris, 1886. 

t M. Menier defines fixed capital as every utility of which 
the product does not change the identity, as useful machines, in- 
struments of trade, profitable buildings, improvements of land, 
and the like. Circulating capital, on the other hand, produces 
utility only by being transformed. It is represented by three 



390 THE THEORY AND PRACTICE OF TAXATION. 

The True Measure of the Burden oe Taxation 
on Production. — In addition to the maxims, or canons, 
proposed by Adam Smith, another one, first pointed out 
by Mr. Edward Atkinson, of Massachusetts, is worthy of 
being added, and may even be regarded in the light of a 
fundamental principle ; and that is, that the burden or in- 
jurious effect of a tax on production or exchange is not to 
be measured by the ratio which the tax may bear to the 
gross value of the subject of taxation, but rather by the 
proportion which the tax bears to the profit which might 
normally or naturally result from undertaking a certain 
line of industry or product. To practically illustrate this, 
let us take an example. Let us suppose two men, A and 
B, to start shops for the manufacture of machinery, each 
with a capital of $20,000, and that each in his operations 
expends $20,000 for coal and iron, $40,000 in wages, and 
$4,000 for transportation of the raw materials to the shops 
for manufacture. The total cost of the annual product of 
each shop will then be $64,000, or a little more than three 
times the capital ; and a sale of their respective products, at 
the net price of $66,000, would yield the owners $2,000, 
or ten per cent profit. Now, suppose further that under 
such conditions A has a tax imposed on him of three and 
an eighth per cent upon the value of his product; it may 
be a customs or excise tax, or an increased rate of rail- 
road freight. This amounts to $2,000 on the $64,000 of 
product — no excessive burden, it may be said, and only 
requiring A to sell his $66,000 for $2,000 additional. But 
suppose A can not get this $2,000 additional ; and he cer- 
tainty can not if the other man, B, is exempt from this 
three-and-an-eighth-per-cent tax, or contrives to evade it, 
and competes with A in the open market. Then, in such 
a case, this three-and-an-eighth-per-cent tax upon product 
manifests itself as ten per cent upon the entire investment 
and absorbs the entire profits which otherwise might have 

elements — materials, goods, money. " Facts prove that the sup- 
pression of circulation is a cause of ruin for the land as for every 
other source of production. Look at Spain since the expulsion 
of the Moors, who had carried to so great a height the theory and 
practice of agriculture. The land, having become the property of 
a few great families or the clergy, was consolidated. Its circula- 
tion ceased completely, and production ceased with it." 



TAXATION ON PRODUCTION. 391 

been realized; so that the business of A first drags, then 
stagnates, and is finally abandoned; while his workmen are 
discharged, the village where the shop is located runs down, 
the artisans, shopkeepers, and professional men connected 
with it complain of hard times and emigrate from the 
locality or the country, while the railroad fails to confer 
all the benefit to the community or profit to its stockholders 
that might be possible. B, on the other hand, exempt from 
the tax, keeps on working, and when hard times come con- 
tinues his sales and the occupations of his workmen by 
taking five per cent profits instead of ten, and selling his 
goods, as he can afford to, at reduced prices to meet tem- 
porary conditions. Actual practical illustrations of the 
injustice and disaster consequent on such discrimination 
in respect to tax burdens and exemptions are afforded 
on a small scale in the history of much railroad manage- 
ment, and to a larger extent where two nations with dif- 
ferent systems of taxation undertake to compete with each 
other in the sale of the products of their labour in the 
common markets of the world. We find here an explana- 
tion also of the immediate beneficial effects which attended 
the first tentative measures of reform in the British tariff 
instituted by Sir Eobert Peel in 1842 and 1845, which, 
although consisting mainly in the removal of numerous 
small but obstructive duties, nevertheless started British 
industry forward by leaps and bounds, even before the 
larger burdens of tariff restrictions were removed in later 
years. 

As the characterizations of " poll/' " head," or " capita- 
tion " taxes, the only possible form of direct taxation on a 
person, and of the advantages and disadvantages of indirect 
taxes, through the agency of which the Federal Govern- 
ment collects the largest proportion of its revenues, have 
been already pointed out, the field of discussion under 
this head is practically limited to the existing methods of 
State or local taxation on property and business, in contra- 
distinction to national or Federal taxation, or to the sys- 
tem under which nearly six tenths of all the contributions 
which the people of the United States make for the sup- 
port of their governments are assessed and collected. 

In Great Britain about two thirds of the revenue of 
the kingdom is from " local " in contradistinction to " na- 



392 THE THEORY AND PRACTICE OF TAXATION. 

tional" taxation— £53,000,000 in 1890. Of this amount 
some £32,000,000, .or about three fifths, is raised by rates 
on the annual value of land and house property in various 
localities. The next largest source of local revenue is from 
tolls, dues, etc., from docks, piers, harbours, ferries, and 
markets, and yields over £7,000,000, or thirteen per cent 
of the total. The total expenditures for local purposes in 
1890 were returned at £67,000,000; the difference between 
local expenditures and receipts being made up by contribu- 
tions or grants from the inland revenue department of the 
kingdom and by municipal loans. The aggregate local debt 
of the kingdom is about one third of the national debt, and 
has been mainly incurred for municipal and urban im- 
provements, such as water and gas supply, markets, tram- 
ways, parks, libraries, public baths, wash houses, drainage, 
and other improvements. The purposes for which the 
proceeds of local taxes are expended in the United King- 
dom are mainly for poor relief, gas and water supply, 
schools, police, asylums, etc. In a report made to the Brit- 
ish Association for the Advancement of Science in 1870 by 
Mr. Stanley Jevons, it was stated that the methods by 
which the local taxes of the kingdom were then levied were 
substantially according to an act passed in the reign of 
Elizabeth.* 

Popular Theory of Taxation in the United 
States stated and examined. — The general idea which 
constitutes the basis of the system of State or local taxa- 
tion mainly recognised in the United States (though not 
in other countries), and generally known and designated 
as " the general property tax" is founded on the assump- 
tion that, in order to tax equitably, it is necessary to tax 
everything; the term everything being at the same time 
used in a sense so indefinite as to embrace not merely 
things in the nature of physical actualities other than 
persons, but also persons, incomes, rights, representatives 
of property, titles, trusts, conclusions of law, debts, and in 
short any act of assessing capable of resulting in the obtain- 
ing of revenue. As a logical consequence of this idea, the 

* This history of the law affecting valuation is told in the first 
report of the* commission appointed to inquire into the subject 
of local taxation, presented to Parliament in December, 1898. 



GENERAL PROPERTY TAX. 393 

exemption of anything from taxation is furthermore held 
to be not only impolitic but unjust, and if made necessary 
by circumstances, as something to be regretted. 

The general property tax for general State purposes 
exists in all but four of the States of the Federal Union 
— Delaware, New Jersey, Pennsylvania, and Wisconsin. In 
Delaware there has been no property tax since 1877, as its 
expenses are defrayed mainly by licenses and taxes on rail- 
roads. In New Jersey there is only a school tax on prop- 
erty, but no property tax for general State purposes. In 
Pennsylvania the State tax is levied only on personal prop- 
erty. In Wisconsin the so-called State tax is levied only 
to defray the interest on the debt, and for the purpose 
of contributing to the university (one-eighth-mill tax), 
schools (one-mill tax), and expenditures on account of the 
insane. But there is no property tax for general purposes. 
In addition to these four cases a property tax is levied in 
Vermont only in case the corporation taxes do not suffice 
to pay the entire expenses of the State. — Seligman, Finan- 
cial Statistics of the American Commonwealths, 1889.* 

* The statutes of Massachusetts enacted for making this sys- 
tem of taxation effective, and which have been substantially 
adopted by most of the States of the Federal Union, thus specify 
the objects, persons, and property that shall be subject to taxa- 
tion: 

Section 1. A poll tax shall be assessed on every male inhabit- 
ant of the Commonwealth above the age of twenty years, whether 
a citizen of the United States or an alien. 

Sec. 2. All property, real and personal, of the inhabitants of 
this State, not expressly exempted by law, shall be subject to 
taxation. 

Sec. 3. Real estate, for the purpose of taxation, shall include 
all lands within this State and all buildings and other things 
erected on or affixed to the same. 

Sec. 4. Personal estate shall, for the purposes of taxation, in- 
clude goods, chattels, money, and effects, wherever they are, ships 
and vessels at home or abroad, money at interest, and other debts 
due the persons to be taxed more than they are indebted or pay 
interest for, but not including in such debts due any loan on 
mortgage of real estate, taxable as real estate, except the excess 
of such loan above the assessed value of the mortgaged real estate, 
public stocks and securities, bonds of all railways, including street 
railways, stocks in turnpikes, bridges, and moneyed corporations, 
within or without the State, the income from an annuity, from 
ships and vessels engaged in foreign carrying trade, and so much 
of the income from a profession, trade, or employment as exceeds 
26 



394 THE THEORY AND PRACTICE OF TAXATION. 

Equally popular and plausible is the argument by which 
this assumption, and the administrative system based upon 
it, is upheld and defended. " Is not all property," it is 
asked, " either directly or through its owner, protected by 
the state or sovereignty ? " " Do not all persons owe allegi- 
ance to the state ? " And if so, " why should not all per- 
sons and property contribute to the requirements of the 
state for revenue in proportion to their ability ? " 

But, popular and plausible as are the arguments and 
assumptions for such a system of taxation, which, in the 
case of the United States, has been made operative under 
State, municipal, and local governments over the persons, 
property, and business of over seventy millions of people, 
and fortified by a vast amount of adjudication, it will re- 
quire but little investigation and analysis to satisfy any one 
who can divest himself from the influence of old prejudices 
of the truth of the following propositions: First, that the 
assumption that it is necessary to assess everything in order 



the sum of two thousand dollars a year; but no income shall be 
taxed which is derived from property subject to taxation. 

The statute exempts from taxation the property of the United 
States and of the State; of the literary, benevolent, charitable, 
and agricultural institutions or societies incorporated within the 
State; all property of the common-school districts; the household 
furniture of every person not exceeding one thousand dollars in 
value, and wearing apparel; farmers' utensils, not exceeding three 
hundred dollars in value; houses of religious worship; mules, 
horses, and neat cattle less than a year old; swine and sheep less 
than six months old ; and " the poils and estates of persons who 
by reason of age, infirmity, and poverty are unable to contribute 
fully to the public charges." 

" No ship or vessel, unless actually engaged in foreign trade, or 
in part undergoing repairs, shall be deemed to be engaged in such 
trade." 

The statutes of the State of New York to the same effect are 
more concise, but equally comprehensive. They provide: 

1. " All lands and all personal estate within this State, whether 
owned by individuals or by corporations, shall be liable to taxa- 
tion, subject to the exemption hereafter specified. 

2. " The term ' personal estate ' and ' personal property ' shall 
be construed to include all household furniture, moneys, goods, 
chattels, debts due from solvent debtors, whether on account, 
contract, note, bond, or mortgage, public stocks and stocks in 
moneyed corporations; they shall also be construed to include 
such portion of the capital of incorporated companies, liable to 
taxation on their capital, as shall not be invested in real estate." 



DEFECTS OF THE METHOD. 395 

to tax equitably involves an impossibility, and therefore 
unavoidable inefficiency, injustice, and inequality in ad- 
ministration; second, that, as popularly used in respect to 
matters pertaining to taxation, the term property is made 
to apply equally to entities and to symbols or non-entities, 
which is in itself an absurdity; and, finally, that the out- 
come of all this is a system which powerfully contributes 
to arrest and hinder natural development, to corrupt society, 
and is without a parallel in any country claiming to be 
civilized. And, in illustration of this latter point, it may 
be added that, notwithstanding recent discussions and pub- 
lications, this whole subject is yet so unfamiliar to the 
people of the United States that probably nine out of ten 
of its best-informed and collegiate educated citizens, and 
even members of the bar, take it for granted that the method 
of assessing and collecting taxes for local and municipal 
purposes is substantially the same all the world over; and 
would be greatly surprised to find on investigation that the 
American system is one of the things that is exclusively 
American and so little esteemed by the people of other 
countries as to be for such reasons strictly " non-export- 
able." 

Taxation of Eeal Estate. — Attention is first asked 
to the defects of this system in respect to the taxation of 
real property. Here everything, as the term implies, is 
real, tangible, visible; something which can not be con- 
cealed ; something which can not, under any circumstances, 
be removed beyond the jurisdiction of the State, except by 
transfer to the Federal Government; something concern- 
ing which the laws and decisions of the courts harmonize 
rather than conflict. In the valuation of real property, 
furthermore, it is possible to apply such tests and verifica- 
tions as will restrict the errors of estimate within compara- 
tively narrow limits. It would also seem as if the law as it 
exists upon the statute books of most of the States was 
sufficiently clear and explicit in its declaration and man- 
date. Thus the language of the statute of the State of 
New York is as follows : 

" All lands within this State, whether owned by indi- 
viduals or corporations, shall be liable to taxation. The 
term ' land ' shall be construed to include the land itself, 
all buildings, structures, substructures erected upon, under, 



396 THE THEORY AND PRACTICE OF TAXATION. 

or above, or affixed to the same; all wharfs and piers; all 
bridges; all telegraph lines; all surface, underground, or 
elevated railroads and the iron thereon; all mains, pipes, 
and tanks laid or placed in, upon, above, or under any 
public or private street or place; all trees and underwood 
growing upon land; and all mines, minerals, quarries, and 
fossils in and under the same." 

In most of the States of the Federal Union the tax 
laws require that the assessment of all property shall be 
at its full and fair cash value; and the judicial authorities 
of the United States have furthermore held that the require- 
ment of approximative equality inheres in the very nature 
of the power to tax, irrespective of any constitutional or 
statute provisions. 

In the State of New York each assessor on the comple- 
tion of his official labours subscribes an oath of which the 
following is the material portion: 

" We do severally depose and swear that we have set 
down in the foregoing assessment roll all the real estate 

in , according to our best information, . . . and 

that we have estimated the value of said real estate at the 
sums which a majority of the assessors have decided to be 
the full value thereof." And the law further provides 
that " every assessor who shall wilfully swear false in tak- 
ing and subscribing said oath, shall be guilty of and liable 
to the penalties of wilful and corrupt perjury." 

It is difficult to see how language, other than this, could 
be made more clear and explicit ; and it is accordingly evi- 
dent that if the law fails in its execution, as it certainly 
does, the fault is not in the statute but in its adminis- 
tration. 

Let us now see what are the acknowledged facts in re- 
spect to the valuation of real property in New York and 
other States where the observance of substantially like con- 
ditions are imperative. 

In some instances in New York the valuation of real 
estate for taxation is reported as low as twenty per cent of 
its real value. In a majority of cases in the country the 
rate varies from twenty-five to thirty-five per cent, and 
rises in the cities to fifty and possiblv sixty per cent of the 
maximum. In one case, mentioned in the report of the 
State assessors n 1879, two adjoining counties of the State 



ASSESSMENT OF REAL ESTATE. 397 

made a difference of twenty thousand dollars per mile in 
assessing the same railroad. In short, there can not prob- 
ably be found a single instance in the whole State, unless 
possibly in the case of certain unoccupied lands, the prop- 
erty of non-residents, where the law as respects the valu- 
ation of real property is fully complied with, and where the 
oaths of the assessors are not wholly inconsistent with the 
exact truth. The official reports of other States abound 
with like reports of flagrant inequalities in the assessment 
of real property. As a rule, where assessors are dependent 
for their tenure of office on political favouritism, there is 
no pretence, notwithstanding their oath, of complying with 
law.* When, as is often the case, a State tax is appor- 
tioned to the several counties of the State, and by the 
counties to their respective towns, there arises a double 
competition between assessors of counties in the aggre- 
gate and of the towns for making the lowest possible valu- 
ation of property, especially real estate. 

In a large number of States (twenty-one in 1890) an 
attempt has been made to correct the undervaluation of 
property rightfully subject to taxation by creating boards 
of equalization, with power to raise or lower the valuations 
of county officials, with a hope of securing substantial uni- 
formity; but this measure has not been successful, and the 
most intelligent members of such boards have recorded 
their opinions that it is impossible under the present system 
to effect any just distribution of the incidence of taxation. 



* " The strife between counties to reduce assessments has not 
ceased, and in all probability will not, as long as assessors are 
elected, or selfishness be a passion in the human breast." — Report 
of the California State Board for the Equalization of Taxes, 

1885-'86. 



CHAPTER XVIII. 

THE EXISTING METHODS OF TAXATION". 
PART II. 

Taxation of Personal Property. — Great, however, 
as may be the inequalities in the valuation and assessment 
of real property, those which obtain in respect to personal 
are so much greater as to almost preclude the idea of com- 
parison. 

In the incipient stages of society, when property con- 
sisted almost or quite exclusively of things tangible and 
visible — lands, buildings, slaves, horses, cattle, ships, house- 
hold effects, and implements — when railroad shares, bonds 
and mortgages, certificates of deposit, and all the multi- 
farious forms of credits and evidences of debt, by which 
we are enabled to-day to secure interests in land or in 
visible, tangible personal property in the possession of 
others, were absolutely unknown,* and when the rate of 
taxation was comparatively small, the theory under con- 
sideration was not impracticable in its application, and, 
under most circumstances, afforded but little opportunity 
for the working of injustice in respect to arbitrary dis- 
criminations in assessing. For when personal property was 
of a visible and tangible character there was no opportunity 
to conceal its ownership and to avoid the tax. Each mem- 
ber of the community furthermore took a sufficient interest 
in his neighbour's affairs to see that justice was done in 
this regard. This kind of friendly interest found expres- 
sion in Ehode Island in a law that was passed in 1673, by 
which it was provided that, under certain circumstances, 
a citizen might be required " to give in writing what pro- 

* Of the evidences of wealth owned by one of the richest fami- 
lies in the United States, almost the whole did not have an exist- 
ence as recently as the year 1840. 
398 



EXTRATERRITORIAL TAXATION. 399 

portion of estate and strength in particular, he guesseth ten 
of his neighbours, nameing them in particular, hath in 
estate and strength to his estate and strength/' It is only 
fair to add, however, that this law was intended to pre- 
vent tax-dodging, and only required a man to guess with 
respect to the relative size of his neighbours' estates to 
his own, when he himself was suspected of having under- 
valued his own estate. Very curiously this ancient law and 
practice find expression to this day in Ehode Island in the 
circumstance that no citizen of that State is qualified to 
vote upon any proposition to impose a tax, or for authoriz- 
ing the expenditure of public money, that has not paid a 
personal property tax six days preceding such day of vot- 
ing. Lists of persons who are or may be qualified to vote 
generally are published and placarded before election, with 
prefixes to each name, showing the electoral qualification 
of its representative on the list, whether the same is depend- 
ent on real estate or personal property taxation. Any per- 
son who shall take down or destroy this list once placarded 
is liable to a fine of three hundred dollars, or three months' 
imprisonment. 

Then again very little of a citizen's property was situ- 
ated without the territorial jurisdiction of the taxing power, 
or indeed without the territorial limits of the hamlet, town, 
or city in which the citizen lived. Then a man could not 
very conveniently live in one place and do business in an- 
other. Within a century an English court has declared a 
contract invalid which stipulated that one of the parties 
thereto should do an act in London and Oxford the same 
day, because the stipulation involved in this particular an 
impossibility. Now the distance involved could be trav- 
ersed in about an hour. The nature of property, as well 
as the means for moving it, was also such as to render all 
transportation difficult, and rapid transportation impossi- 
ble. The discrepancy in taxation as respects different places 
was also so small that no great advantage could be gained 
by shifting one's residence or property for the sake of evad- 
ing taxation; and the difficulty and inconvenience of so 
doing were so great that the temptation could hardly have 
existed. But even in the most simple condition of society 
the practical application of what may be properly termed 
the " infinitesimal " system of taxation must have been al- 



400 THE THEORY AND PRACTICE OP TAXATION. 

ways attended with great difficulties, for the reason that it 
involved and necessitated personal inquisitions, than which 
there is nothing in government that men more dislike and 
resist; and, in the language of a committee of the French 
National Assembly of 1789 (of which Talleyrand and La- 
rochefoucauld were members), the recognition and prac- 
tice of which, by any government, is something inconsistent 
with, and antagonistic to, the maintenance of a free people. 

It is not generally known, furthermore, that Alexander 
Hamilton, as a member of the conventions which framed 
the Constitution of the United States and the first Consti- 
tution of New York, gave all his influence in favour of the 
restriction of all internal or local taxation to visible, tan- 
gible objects, and to the assessment of these specifically, 
and by some uniform and simple rule. The language used 
by him in one of his papers on this subject is as follows : 
" The genius of liberty reprobates everything arbitrary 
or discretionary in taxation. It exacts that every man, by 
a definite and general rule, should know what proportion 
of his property the State demands. Whatever liberty we 
may boast in theory, it can not exist in fact while (arbi- 
trary) assessments continue." * 

Again, had nothing come down to us in English history 
from the time of Edward III, other than one of the assess- 
ment rolls of that period (when there was little or no prop- 
erty capable of taxation but what was visible and tangible), 
the evidence would be complete that the mass of the Eng- 
lish people were but little better than slaves; for the mere 
inspection of such rolls shows that their preparation in- 
volved such an inquisitorial scrutiny into domestic life, 
such a seeing, handling, enumeration, and minute valua- 
tion of everything in the household, from the utensils of 
the kitchen to the furniture of the bedchamber, as to make 
personal freedom, or a sense of self-respect, on the part 
of the taxpayer who submitted to such a scrutiny, almost 
an impossibility, f 

* The Continentalist, No. VI, in Works of Alexander Hamil- 
ton (Lodge's edition), vol. i, p. 270. 

t A copy of an assessment roll of the time of Edward III 
(1329-'67) given by Lingard, in his History of England, contains 
a list of articles, down to a towel and a bench; and the historian 
notes that in the returns are carefully mentioned the very rooms 



INTANGIBLE PROPERTY. 401 

And in this connection it is instructive to again refer to 
the famous insurrection of English yeomen and peasants 
under " Wat " the Tyler, in the reign of Richard II, the 
successor of Edward III, which originated directly in the 
attempt of a tax-gatherer or assessor to ascertain, by brutal 
personal examination, whether a daughter of " Wat's " had 
attained the age of puberty, and in consequence had so be- 
come liable to enrolment for capitation assessment. 

But to whatever extent simplicity in the elements of 
property simplified the original methods and ideas in re- 
spect to local taxation, the problem involved rapidly 
changed, and became more and more intricate as increas- 
ing population, and increasing commerce, and intercom- 
munication, required that property should, to a great extent, 
be put into a condition to admit of being readily mobilized, 
in order to allow of its most profitable use and application. 
Thus a large part, in fact the larger part, of what is to-day 
termed " personal property " in every civilized state is 
of the most intangible character, and in great part invisible 
and incorporeal: such, for example, as negotiable instru- 
ments in the form of bills of exchange, state, municipal, 
and corporate bonds, and the multiplied forms of evidence 
of indebtedness, certificates of stocks, copyrights, patents, 
legal-tender notes, etc., all of which, if entitled to the name 
of property, is, through a great variety of circumstances, 
constantly exposed to fluctuations in value, frightful in 
amount, and incalculable in their suddenness, and under 
the influence of which wealth vanishes as if by the wave 
of a magician's wand. It is offset or measured by indebt- 
edness which may never be the same one hour with another ; 
is easy of transfer, and, as essential to using, is in fact con- 
tinually transferred from one locality to another, and from 
the jurisdiction of one state to the jurisdiction and laws 
of another and a different state; is here to-day, gone to- 
morrow ; is burned, sunk at sea, lost in mines, patents, rail- 
ways, factories, trading associations, and in a thousand 
other different ways. It has been recently said that five 
men who do business in Boston can together control or dis- 



in which the articles were found, and that there were no exemp- 
tions except one suit of clothes for each person, which were sup- 
posed to be included in the tax levied on the poll or person. 



402 THE THEORY AND PRACTICE OP TAXATION. 

pose of an amount of property which equals one fifteenth 
of the entire assessed valuation of that city; and that they 
could, if they pleased, carry round the evidence of the 
existence of that property in their coat pockets, or, accord- 
ing to popular theory, the property itself. 

For the purpose of ascertaining the amount of taxable 
personal property owned by individual citizens two methods 
have been employed in the United States : 

1. In several States, such as Massachusetts, Connecti- 
cut, and Illinois, the taxpayer is required to give each year 
to the assessor a detailed and verified statement, carefully 
itemized, of all the personal property owned by him or 
under his control and of every kind, sort, and description. 
This method is generally known as " the listing system." 
In several of the States the principle that a State can only 
tax that which is within its territorial jurisdiction is 
ignored, and even visible tangible property situated outside 
of the taxing State is required to be returned for the pur- 
pose of taxation. 

2. The other and more general method of ascertaining 
taxable personal estate is that which is exemplified in the 
State of New York, by which the assessor guesses at the 
personal property of the victim, and places him upon the 
list at such a figure as either his information or imagination 
sustains him in considering to be that which justly repre- 
sents the personal estate of the taxpayer.* 

In view of the fact (made certain by all experience) 
that very few returns of personal property, even when sup- 
ported by oaths, are worthy of implicit credence, the posi- 

* " In a case involving the assessment of personal property, 
in one of the courts of this State a few years ago, an assessor in 
one of our cities testified that his method of ascertaining what 
personal property a taxpayer owned was to examine the direc- 
tories, the county clerk's office, and papers relative to estates of 
deceased persons.; and when he lacked definite information, to 
guess at the assessment from the place of business or of residence 
occupied by the taxpayer. If the tax was cheerfully paid for two 
or three years, the personal assessment would then be ' marked 
up.' This process of increasing the personal assessment went on 
until, as the witness graphically said, the taxpayer ' squealed,' 
when the amount was finally fixed at what the taxpayer would 
bear without swearing it off." — Address on the Taxation of Per- 
sonal Property, by Julien T. Davies, before the Manhattan Single 
Tax Club, January, 1891, New York. 



ASSESSING PERSONAL PROPERTY. 403 

tion of the assessor who honestly desires to enforce the 
law is one of great difficulty and embarrassment. For, in 
the absence of some superhuman power which will permit 
that to be seen which to ordinary vision is invisible, and 
to know what, through the exercise of ordinary reason, can 
not be known, any attempt on his part to obtain independ- 
ent cognizance of such commercial and financial instru- 
mentalities for the purpose of valuation and assessment is, 
on its face, an impossibility; and if the co-operation of the 
person to be assessed is to be invited or relied on, two of 
the most powerful influences that can control human 
action — love of gain, or the unwillingness to part with 
property, and the desire to avoid publicity in respect to 
one's private affairs — immediately unite to oppose and pre- 
vent such co-operation. 

A resort to personal inquisition, with the accompanying 
machinery of oaths, " dooming," and penalties, is next in 
order ; under which the State, ignoring all rules enacted for 
the protection of debtors in the ordinary collection of debts, 
pursues the citizen for the collection of what it claims to 
be a debt, with no better result, in nine cases out of ten, 
than the impairment of the public sense of both justice 
and morality. 

But it is claimed that each individual owes the State 
annually a certain sum of money in the way of taxes, pro- 
portioned to his entire property. If he voluntarily pays, 
he escapes arbitrary measures. If he declines to pay, or 
tries to avoid payment, he has no just cause to complain if 
he is regarded in the light of a criminal, or if the same 
arbitrary measures are used to collect his tax as if it were 
a debt owing by one citizen to another. Let us examine this 
averment. 

If the defaulting taxpayer is to be regarded as a crimi- 
nal, and as such placed in the worst possible light, he cer- 
tainly ought not to be deprived of the privileges of a crimi- 
nal, which are a right to a public investigation according 
to the rules of evidence adopted by free and enlightened 
communities, a right to be heard before condemnation, and 
the right to be presumed innocent of having property 
subject to taxation until the fact is ascertained otherwise 
by legal proof. But under the existing tax laws of most 
of the United States there are not accorded to the taxpayer 



404 THE THEORY AND PRACTICE OF TAXATION. 

the privileges of a criminal; for no tax can be assessed on 
a large proportion of the personal property of the State 
according to any rules of legal evidence that any common 
law court would adopt. No assessor, under the laws of New 
York, for example, in assessing personal property, can act 
judicially. The law gives him no power to obtain legal 
testimony of a character that is admissible in court; he 
must act the part of an arbitrary despot against an incul- 
pated taxpayer, or not act at all, and his conclusions for 
acting must be reached at best by the testimony of those 
who have no means of knowing anything, in a legal sense, 
about the subject-matter under investigation. It seems 
clear, therefore, that any attempt to tax without legal evi- 
dence is an act of usurpation or despotism, wholly antago- 
nistic to the principles of a free government, and that it is 
a mockery to characterize such acts as, in any sense, judi- 
cial proceedings. Nor does the right to reduce or regulate 
the assessment by the oath of the taxpayer relieve the law, 
in any degree, of its unequal and despotic character; for 
every individual holding public office knows that oaths, as 
a guarantee of truth, in respect to official statements, have 
ceased to be of any value. The assessments made according 
to the oaths of parties, furthermore, are not made according 
to legal evidence, upon examination and proofs; but ac- 
cording to the will and secret caprice of each taxpayer, 
instigated by his selfishness and the natural depravity of 
human nature. Each taxpayer, under the present rule, 
becomes, therefore, the interpreter not only of the law but 
of the fact, and makes a secret interpretation of both, and 
we have as many interpreters of the law as there are num- 
bers of taxpayers; and also an indefinite multiplicity of 
assessors; for each person who unfairly reduces his own 
assessment arbitrarily assesses thereby some other of the 
community for the difference. Could or would any people 
apply the same rules for the collection of debts? Is there 
any one who has so much confidence in human nature 
that he will propose a law that a person who is sued shall 
be discharged from all claims of indebtedness if he will 
make oath, interpreting both the law and the fact him- 
self, that he owes the claimant nothing? Is it believed 
that under tariff laws the government could get sufficient 
revenue to pay for its collection if the importer was per- 



HONESTY OF RETURNS. 405 

mitted to offset debts against the value of his goods; or 
if the law was peremptory that his oath alone should be 
given, and that there should be no legal examination, in- 
spection, or proof of the value or character of the impor- 
tations ? 

In whatever aspect, therefore, we regard the present 
popular system of local taxation in the United States, it 
is arbitrary and in violation of the principles of constitu- 
tional government. If the assessor acts, he acts solely by 
his despotic will, and without any reference to legal proof 
or evidence, such as is enforced in recovering private debts ; 
and if the taxpayer, by his oath, becomes the arbiter, his 
will is supreme and not subject to investigation or control. 
It is a system, in short, that violates all the laws of evi- 
dence, the growth of centuries in civilized countries; that 
makes secret that which should have publicity, and proceeds 
upon a basis that could not be recognised for one moment 
in the collection of debts, or in the trial of persons accused 
of the most heinous of offences. 

Such, then, are the difficulties which all experience has 
shown to be attendant upon every attempt to tax personal 
property of an intangible and invisible character, and which 
all who have investigated the subject acknowledge to be in- 
superable. As not a few, however, who are ready to make 
this acknowledgment nevertheless insist that all personal 
property that is visible and tangible and can not be con- 
cealed, but can be reached effectively and equally, ought 
to be taxed; and as the drift of popular sentiment in the 
United States at the present time favours this assumption, 
it is important to next consider the nature and extent of 
the results attainable by intelligent and faithful assessors 
acting in conformity with it. 

As the experience, however, of the States that have en- 
acted the most precise and stringent methods of taxation 
proves beyond question that the returns of the owners of 
visible, tangible personal property, even when supported 
by oaths, will not, as a rule, afford a basis for the correct 
valuation and assessment of such property, the further as- 
sumption is warranted that the attainment of such a 
result in even an approximate degree must depend on the 
personal visitation and inspection of the most intelligent 
and honest assessors. And here at the very outset of the 



406 THE THEORY AND PRACTICE OF TAXATION. 

prospective investigation its inherent insuperable difficul- 
ties begin to manifest themselves. 

Thus a large proportion of the so-called personal prop- 
erty of every highly civilized country which is not intan- 
gible and invisible, and which requires only ordinary per- 
ception for recognition and valuation, is in the nature of 
instruments or subjects of commerce between states and 
nations; such as railroad machinery, ships, steamboats, 
immense stocks of raw and manufactured products accumu- 
lated in store for the sole purpose of movement, or actually 
in transitu. As a matter of fact the granaries for no small 
portion of the surplus stock of the world's cereals are at 
the present time ships and railroad cars in the process of 
movement to the points of greatest demand for consump- 
tion. What shall be the situs of all such things for assess- 
ment? If actual location is to be determinative, then a 
product of grain, or merchandise, which, in movement for 
a market, or conversion into other forms, may happen 
to be in Illinois in April, in Ohio or Massachusetts in 
May, in New York in July, in New Jersey in August, and 
in Connecticut in October, will be liable to five separate 
taxes in one and the same year ; for the laws of each of these 
States require their assessors to return, for taxation, all 
such property as at the periods mentioned may be actually 
within the sovereignty and jurisdiction of the taxing au- 
thority. 

If, therefore, the existing system of taxing visible and 
tangible personal property in the United States is to be 
continued and made equitable and effective, the first essen- 
tial step for the purpose of making it such, by preventing 
evasions and avoiding duplicate taxation on one and the 
same persons and property, is for all the States to agree 
that all their assessors shall make their visitations, inspec- 
tions, and appraisements for the purpose of assessment on 
one and the same day, as, for example, the first day of 
April. The following probable forecast of the result has 
been made by a recent writer : 

" On the appointed day, all over the country, a swarm 
of assessors must besiege the factories, mills, shops, and 
stores for the purpose of making an honest valuation of 
all merchandise on land. This valuation must be completed 
in one day; or otherwise Smith's valuation being com- 



ASSESSMENT DAY. 407 

pleted on April 1st, while Jones's is left to April 2d, there 
will be a midnight exodus of easily portable goods from 
Jones to Smith, so that one assessor shall find little of value 
in the possession of Jones on April 2d. No help must be 
asked in the work of valuation from the owners or clerks; 
for if that is done, the assessor might just as well accept 
the sworn returns of the owners, as is done now, with the 
most ludicrous and inequitous results. As it is evident 
also that it would be impossible for the owners themselves 
to make such a valuation in one day, even with the aid 
of all their clerks, there must be a number of assessors 
employed, exceeding all the number of persons em- 
ployed in holding and selling merchandise. The work 
might, however, by extreme diligence be done in a rough 
way by two million local assessors. As it would take them 
at least three days to tabulate, copy, and file their returns, 
besides the one day occupied in valuing, each would serve 
at least for four days ; and if paid at the rate necessary to 
procure men competent for the task, the lowest cost of 
such an assessment, independent of printing and station- 
ery, could not be properly estimated at less than forty 
million dollars. 

" Again, on c assessment day,' there would be universal 
concealment of all articles of small bulk and great value. 
Watches, jewels, gold, money of all kinds, and every like 
conceivable thing would vanish from sight. Men would 
walk about stuffed with valuables. Old stoves, pots, and 
pans would be filled with money and jewels. Valuable 
goods which could not be hidden would be covered with 
dust or otherwise made to look almost worthless. In every 
mill and factory manufactures would be kept in an un- 
finished state, as far as possible, until assessment day had 
passed. A thousand devices would be resorted to in order 
to reduce the apparent value of the things which the 
assessor would inspect, or to prevent him from seeing 
them at all. 

" In order to make this plan of official valuations suc- 
cessful, the assessors must enter every room in every house 
and strip naked every man and woman whom they suspect 
of concealing taxable property. This is the only way in 
which visible, tangible personal property ever was or ever 
can be fairly, equally, and effectually taxed. 



408 THE THEORY AND PRACTICE OF TAXATION. 

" And, when all this was done, the system would none 
the less fail. It could not be made even approximately cor- 
rect. Every article would be valued very much too high 
or very much too low. Nor would the average produce any 
fair result. The goods of Jones would be appraised at two 
hundred per cent of their real value; the goods of Smith 
at ninety per cent; and the goods of Brown at fifty per 
cent. Jones would thus be cheated heavily, and Smith 
moderately, for the sole benefit of Brown/' * 

On the other hand, if the fiction of law, that personal 
property follows the owner, is to govern, then all such 
property may be taxed where it is not, and be exempt from 
taxation in the place where it actually is, and where it 
shares in the benefits that flow from the protective ex- 
penditures — police, fire department, etc. — which are inci- 
dent and necessary to the locality. Or, as is very often and 
perhaps most usually the case, the same property is sub- 
jected to double taxation; and as a proof that this latter 
supposition, which seems on its face an absurdity, is a 
matter of constant experience, it may be mentioned that 
some years since, and probably at the present time, a well- 
known publishing house was regularly taxed in Cambridge, 
Mass., for so much of its stock in trade as was kept in 
store and permanently employed in business in New York 
city, although it was admitted that the same tangible, visi- 
ble property was at the same time regularly taxed by the 
New York authorities ; and, furthermore, when a protest 
was made to the Massachusetts authorities against the 
continuance of this injustice, the decision was rendered, 
that under existing Massachusetts statutes the plundered 
taxpayer could have no remedy except by change of busi- 
ness or change of (State) residence. 

Again, if a foreign banker subscribes to any of the 
State or municipal loans of the United States, the bonds 
or other evidences of indebtedness which he receives in ex- 
change for his money are exempt from taxation by reason 
of his nonresidence ; but if a resident widow or maimed 
soldier be moved by the desire for security to purchase a 
little of the same loan, the small rate of interest which 



* Taxation of Personal Property, Impracticable, Unequal, and 
Unjust. By Thomas G. Shearman. New York, 1895. 



FARMERS' AND MERCHANTS' TAXES. 409 

such investments generally carry will be made still smaller 
to all such persons, by reason of an annual tax of from one 
to two or a greater percentage imposed on the holders, for 
the simple reason that they are residents; although the 
protection afforded to the latter is in no degree different 
from or greater than that afforded to their more fortunate 
and rival foreign competitors, who reside where such taxes 
are not imposed; all of which is equivalent to saying offi- 
cially that whenever an American loan, particularly de- 
sirable for trust investments, is created, it shall be sacredly 
reserved for foreigners, or that bad portion of citizens of 
the United States who have no scruples about cheating the 
assessors. Local subscriptions to local indebtedness, with 
the augmentation of interest in the locality which would 
necessarily follow, are therefore discouraged; while to the 
American citizen who ventures to subscribe, residence is 
made an offence and coupled with a penalty. 

In the case of agriculturists, who constitute more than 
half the population of the country who follow gainful occu- 
pations, their personal property, consisting mainly of farm 
animals, implements, and farm products, is always readily 
open for inspection, and has a nearly uniform value 
throughout the country. The personal property of farmers 
is accordingly more completely reached and more accu- 
rately valued by honest assessors than the property of any 
other class of the population. 

Consider next the case of merchants. " What assessor, 
however honest and competent, can personally value all the 
stock of even one store, not to say the stock of all the stores 
in his district? Fancy an assessor making a personal 
appraisal of the stock of fifty drug stores, a hundred dry- 
goods stores, and as many groceries ! In one store there 
are hundreds of different articles at different prices, by the 
yard, or the pound, or the gallon. Bales of goods lie side 
by side ; some worth four cents a yard, some ten cents, some 
two dollars. The difference between goods worth one dollar 
a yard and those worth two dollars is often imperceptible 
to the eye of any one but an expert. But how can an 
assessor have time even to open all these bales, to look at 
them, much less judge accurately of their value? All the 
assessors of New York city could not approximately value 
the stock of one of its great drygoods merchants without 
27 



4:10 THE THEORY AND PRACTICE OF TAXATION. 

relying upon the word of his clerks. Therefore the stock 
of merchants and manufacturers would be assessed upon 
the valuation given by themselves, as in fact it is now. 
Thus the assessment of ' visible and tangible property/ 
in these important cases, is made and must be made in 
exactly the same manner as the assessment of bonds, notes, 
and other invisible property, resulting in a double or 
treble burden upon the simple and truthful as compared 
with their unscrupulous neighbours." 

And, finally, as regards so much of other "personal 
property " as is tangible and visible, and clearly within the 
territorial jurisdiction of the taxing power, such as articles 
of personal adornment, clothing, furniture, works of art, 
musical instruments, books, etc., shall we assume that we 
have here a class of articles on which it is desirable to 
levy taxes? Of course, the popular answer will be in the 
affirmative; for are not all these objects, it may be asked, 
the very ones best fitted to sustain taxation? and are they 
not in great part luxuries rather than necessaries? But 
how, it may be asked, are you going to tax them ? for it is 
reasonable to suppose that if they are to be taxed, it is to 
be by a system that works equitably, and not by a system 
which, by taxing A, and letting B, C, and D escape, brings 
the law into contempt; and, by making the sense of the 
commission of a wrong on the part of the State the 
excuse for the commission of another wrong on the part 
of the individual, gradually undermines the morality of a 
community that does not wish to be dishonest. 

An even approximately correct valuation of the above- 
enumerated articles is, however, a matter of great diffi- 
culty, and none but an expert can effect it. In very many 
houses there are many articles, like bedding, carpets, pic- 
tures, glass, porcelain, and the like, which exhibit few out- 
ward indications of undue value, and yet whose cost was 
very many times greater than similar articles in ordinary 
use. In fact, in proportion to the wealth of the taxpayer 
would be the failure of the most honest assessor to esti- 
mate the true value of his property. Some years ago a 
State tax commission in Illinois, with a view of aiding 
assessors to discover and rightly assess property of the 
character under consideration, recommended to the State 
Legislature the enactment of a statute whereby every 



EXEMPT PERSONAL PROPERTY. 411 

woman of " full age and sound mind," either directly or 
by her representative, should annually return to the assess- 
ors a statement of the value of all the jewelry, household 
furniture, and all other property in her possession; but 
these recommendations never received any higher consid- 
eration from the public than that of being denounced and 
laughed at. And most naturally; for what woman would 
tell her age or the amount and value of her jewelry and 
finery, and more especially to a stranger invested with 
brief official authority as an inquisitor and assessor? 

Again, a very large part of what is termed " personal 
property" is, through the necessities, policy, or organiza- 
tion of governments, made exempt from taxation; as, for 
example, all instrumentalities and property of a govern- 
ment — national, State, or municipal — especially the bonds, 
notes, currency, and certificates of indebtedness issued by 
the United States. The several States also generally 
exempt or lightly tax the deposits and surplus of savings 
banks, the accumulations of mutual insurance companies, 
the property of charitable, religious, or educational organi- 
zations, and also a comparatively small amount — but large 
in the aggregate — of personal property in the form of 
household furniture, clothing, working tools, vehicles, and 
animals, and the produce of farms not sold but consumed 
by the producers; and that the present tendency of State 
legislation is furthermore to continually enlarge the list 
of exempt property. The aggregate money value of such 
exemptions can not be accurately stated, but there is reason 
to believe that they include about one fifth of all the per- 
sonal property of the United States.* 

* The New Jersey State Board of Taxation, in their annual 
report for 1895, call attention to the fact that, out of the total 
amount of assessed property in that State in 1894, nearly ten per 
cent, or $72,786,571, was exempt from taxation. The amount of 
tax exemptions in Newark, N. J. (a city which within recent 
years has been nearly bankrupt by excessive indebtedness and 
taxation), is reported for 1897 at $18,076,568, made up in part 
as follows: Churches, $4,081,750; private schools, $196,900; city 
property, $4,924,950; cemeteries, $893,800; charitable institutions, 
$1,231,700; public parks, $4,654,867. Soldiers' and sailors' widows 
have exemption to the amount of $523,675; firemen, $79,445; the 
National Guard, $36,475. Ihese figures do not include the railroad 
exemptions, which are under the charge of the State Tax Com- 
missioners. 



412 THE THEORY AND PRACTICE OF TAXATION. 

Taxation of the Instrumentalities of Commerce. 
— Extensive as has been the foregoing review of the in- 
herent difficulties attendant on the attempt to equitably 
and efficiently tax personal property, the results of taxing 
the instrumentalities or objects of commerce are especially 
worthy of additional notice in this connection. 

A little reflection ought to abundantly satisfy that to 
tax the instrumentalities or objects of commerce in one 
locality, and to exempt the same from all direct taxation 
in another, will clearly not permit the former to enter a 
common market on an equal basis for competition with 
the latter. And yet this unjust discrimination is exactly 
what does result from the attempt of a majority of the 
States of the Federal Union to tax all such instrumentali- 
ties or objects under the general head of personal property, 
and the exemption of the same classes of property from any 
corresponding assessment in the British provinces of North 
America, and in all foreign countries with which the 
United States enter into extensive commercial intercourse 
and competition. Boards of trade and commercial con- 
ventions may pass " deploring " resolutions concerning the 
decay of American commerce, and committees of Congress 
may continue to investigate the same subject, but so long as 
ships, engaged in the carrying trade on the free ocean, and 
owned in Canada, England, France, Germany, and Hol- 
land, are not directly taxed, and ships engaged in compe- 
tition in the same business, and owned in Portland, Boston, 
Baltimore, New Orleans, and San Francisco, are taxed, 
and taxed heavily, commerce will incline to move in the 
paths which are made easy and profitable to it. The dif- 
ference in cost of a single penny per bushel in laying 
down grain at Liverpool may alone be determinative of the 
question whether millions of bushels shall be supplied by 
the wheat fields of the United States or those of Eussia, 
India, or Hungary. 

" As a rule, the States of the Federal Union tax ship- 
ping as other property is taxed, regardless of the fact that 
the other leading maritime nations usually impose no 
taxes on shipping as property, but tax only the actual earn- 
ing of shipping; assuming doubtless, and correctly, that 
from the very nature of its use shipping can not fairly 
share in the benefits which accrue from State and munici- 



INSTRUMENTALITIES OF COMMERCE. 413 

pal taxation for public purposes. In short, when a vessel 
is fulfilling the function for which it is built, it is navi- 
gating the ocean, remote, except during brief stay in port, 
from the fields and purposes to which State and local taxes 
are applied." 

Only one State — Delaware — exempts shipping from all 
taxation ; New York and Alabama exempt so much of their 
shipping as is engaged in foreign trade; Massachusetts, 
New Hampshire, and Connecticut tax the earnings only 
of their shipping in foreign trade; and, under decision of 
the United States Supreme Court, Pennsylvania imposes 
no tax on its shipping in interstate or foreign trade. 

All the other States tax all classes of vessels as personal 
property, making no distinction between those engaged in 
foreign and domestic trade. 

The comparative burden of taxation on shipping in the 
United States and the maritime states of Europe finds 
practical illustration in the following examples: The city 
of Portland, Maine, levied more taxes in the year 1893 on 
its shipping (63,206 tons, valued at $909,000) than the 
Cunard Company paid to Great Britain in the same year 
on a valuation of their ships of nearly $9,000,000. The 
taxation of shipping at Charleston, S. C, is five times 
heavier than that levied by Great Britain or Germany. 
During the year 1893 the city of San Francisco levied 
taxes to the amount of $85,675 on its shipping, a sum 
within $600 of the combined taxes paid during the same 
year by the Cunard Line, the Hamburg- American Line, 
the North German Lloyd, and the Compagnie Generale 
Transatlantique of France to their respective Governments ; 
their combined shipping comprising upward of 700,000 
tons of the best steel and iron steamships valued at upward 
of $58,000,000. And in addition to this onerous and (in 
comparison with other countries) discriminating burden of 
taxation on shipping, the income-tax act of 1894 imposed 
an additional and new tax of two per cent on the earnings 
of shipping in excess of $4,000, which would have fallen 
mainly on that portion of the United States merchant 
marine — i. e., the great American steamships — which is 
most exposed to foreign competition, and which it is re- 
garded as especially desirable to nationally foster. 

On the other hand, Great Britain, Germany, France, 



414 THE THEORY AND PRACTICE OF TAXATION. 

and the Netherlands tax only the earnings of shipping 
— i. e., an income tax. Austria in 1894 suspended for five 
years all taxation of its vessels engaged in foreign trade. 
Under this system of vessel taxation by the great mari- 
time countries of Europe it is, furthermore, to be noted 
that the ownership of a ship that is idle and not earning 
does not entail any burden of taxation; but in the United 
States it makes no difference whether a ship be at work 
or idle, profitably or unprofitably employed, she pays taxes 
all the same. 

The experience of the several States in respect to the 
taxation of vessels affords, however, a very striking illus- 
tration of the facility with which obnoxious taxes are 
evaded in the United States, or shifted upon those who 
are less able to bear them, and is thus related in the Re- 
port of the United States Commissioner of Navigation 
for 1894: "It is relatively an easy matter for the owner 
of several vessels to form a partnership with the resident 
of another State in which low taxes are imposed on ship- 
ping, and by allowing the vessels to stand in the name of 
such partner to escape the endeavour of the law to tax 
him more than his competitors in navigation are taxed. 
Thus, some years since, the authorities in Chicago decided 
to tax the shipping owned at that port on its full insurable 
value at the rate fixed foT municipal taxes. The vessel 
owners of the city, in self-defence and to enable them to 
continue in business against competing ports, were com- 
pelled to make nominal transfers of their property, and 
thousands of tons of shipping, doubtless owned in Chicago, 
appear on the records of the National Bureau of Naviga- 
tion as owned in other States. Though in the number and 
tonnage of its entries and clearances Chicago ranks with 
the greatest ports of the maritime world, yet its apparent 
rank as a ship-owning port is insignificant." 

It is important also to notice how changes in the meth- 
ods of doing business, in the facilities for transporting 
persons and property, and in the constitution of society 
and standards of morality, antagonize and nullify the popu- 
lar ideas concerning taxation of personal property. 

Formerly (as has been already pointed out) a man 
could not conveniently live in one place and carry on 
business in another. But now men may live and be taxed 



STANDARD OF MORALITY. 415 

at places where the taxes are light and do business every 
day in a city twenty, thirty, or fifty miles distant where 
taxes are high, and there be exempt from all taxation. 
And yet how are yon going to prevent a citizen from decid- 
ing for himself where he will live and where, nnder the 
accepted fiction of law that personal property follows the 
owner, his personal property shall be taxed? Formerly, 
to bargain for the sale of goods in a place not farther 
removed than New York is from Boston or Philadelphia, 
transport them there, and receive the proceeds of the sale, 
was an affair of weeks. Now a man living in Boston may 
bargain for a sale of thousands of dollars' worth of goods 
in Sew York, transport them there, and receive his pay 
in the space of a single day. Kay, more. A man may 
acquire property and part with it at places on the opposite 
side of the globe with the greatest ease and security within 
the space of a few hours. 

A change in the standards of morality has been alluded 
to as antagonizing methods of taxation. Thus, not very 
many years ago, every man knew, at least approximately, 
the amount and kind of property of all his neighbours, 
and knew that his neighbours knew the same in respect 
to himself. " He was willing to admit, under oath or 
otherwise, what everybody knew; and he would hardly 
dare to drive six cows to pasture every morning and swear 
in the afternoon that he had none." But now let us see 
from an indisputable experience of very recent date how 
the conditions of property and of morals have changed. 
Previous to January 1, 1889, the State of Connecticut, 
in accordance with common practice, taxed personal prop- 
erty in the form of bonds and notes from one to two or 
more per cent, wherever it could be found. The result 
was that the State from the outset could never reach for 
assessment but a small fraction of such property, although 
every citizen was required to annually submit a list to the 
assessors and make oath that he had included in it all 
property of the character in question; and this fraction, 
furthermore, tended to rapidly decrease. Thus, in the so- 
called grand list or aggregate valuation of the State for 
the year 1855, the value of the notes, bonds, and money 
at interest made subject to assessment constituted about 
ten per cent of the entire taxable property of the State. 



416 THE THEORY AND PRACTICE OF TAXATION. 

In 1865 it was about seven and one half per cent; in 1875 
a little over five per cent, and in 1885 about three and 
three quarters per cent; and yet during the period covered 
by these statistics it is probable that the amount of State, 
railroad, municipal, and farm-mortgage bonds owned by 
the citizens of Connecticut increased to an extent equal 
to at least one half the valuation of all the other property 
in the State returned and made subject to taxation. In 
1855 the inhabitants of eighty-one towns of the State did 
not own a single mortgage bond. Not a bond was returned 
as owned in the rich city of Meriden. The twenty thou- 
sand inhabitants of the thriving city of Waterbury by their 
united efforts managed to scrape together only seven hun- 
dred and fifty dollars in bonds. So far as cash is con- 
cerned, there was never a community since mankind 
emerged from a state of barter that got along with so little. 
In 1889, however, the Legislature of Connecticut modified 
her former statutes, and provided that the owners of all 
notes and bonds who would register them with the State 
Treasurer, and agree to pay in advance a tax of one fifth 
of one per cent per annum for a period of five years, should 
be exempted from all further State or local taxation on the 
same. Note now the results. The law in question went 
into operation on the 1st of August, 1889, and between 
that date and the 1st of January succeeding, something 
over $30,000,000 of bonds and notes were registered under 
the modified assessment,* of which the treasurer in his 
report to the Legislature says, " Probably at least three 
fourths have never paid any taxes whatsoever." Here, 
then, within five months was uncovered to the taxing power 
a quantity of what the law makes property in excess of 
$22,000,000, and returns are still being received in large 
volume. The conclusion, therefore, seems to be that there 
is a good deal of conscience in the highly moral State of 
Connecticut which can be induced to cheat and forswear on 
a two-per-cent tax, that can not be bribed on a tax of one 

* For succeeding years the amounts registered with the State 
Treasurer were returned as follows: 1890, $33,654,335; 1891, $24,- 
792,509; 1892, $39,473,988; 1893, $12,418,673; 1894, $20,507,396; 
1895, $18,533,543; 1896, $21,159,161. Why the large difference in 
the receipts of the above years occurred has not been satisfactorily 
accounted for by the State officials. 



EXPERIENCE OF CONNECTICUT. 417 

fifth of one per cent ; or that a tax of from one to two per 
cent on bonds and notes in Connecticut is sufficient to 
nearly tax out of existence all conscientious scruples of 
its people in respect to the violation of law and the perpe- 
tration of fraud in respect to matters of taxation.* 

In view of these facts the following answer, made some 
years ago by a man of New England birth and education, 
but of unenviable character and influence, to a question 
as to his father's honesty, has no little of point and appli- 
cation : " He is honest as the world goes. He won't tell a 
lie for twelve and a half cents " (the New England nine- 
pence), " but he will tell eight for a dollar." 

* In 1897 the Legislature of Connecticut, not satisfied with the 
unexpected large amount of notes and bonds returned for taxation 
at the rate of one fifth of one per centum per annum when volun- 
tarily paid in advance, doubled the rate of tax to two fifths of one 
per cent, or four mills on the dollar. What will be the result of 
this fiscal policy is yet to be determined; but it is to be regretted 
that the original experiment could not have been longer continued. 



CHAPTER XIX. 

THE EXISTING METHODS OF TAXATION". 
PART III. 

Distinction between "Eeal" and "Personal" 
Property Artificial and not Natural. — As a further 
help to the understanding of the subject, it is important 
to here call attention to the circumstance that the distinc- 
tion between real and personal property is, to a very great 
extent, an artificial and not a natural one, and that there 
is not only no common or accepted rule for their definition 
and distinction, but, on the contrary, a great diversity of 
statute enactment by the different States of the Federal 
Union and by foreign governments on the subject. (For 
abundant illustrations in proof of this statement, see page 
374.) " The statute laws on the subject of taxation in 
the United States," says Mr. Hillard, in his Law of Taxa- 
tion, " is as voluminous as the constitutional provisions 
are few and concise." With a general similarity, the laws 
of the different States are very diverse; and so numerous 
and frequent are the changes that the author disclaims 
any responsibility in his book for the implied statement 
that "the law of any particular State, however recent, is 
now in force." 

The attempt, therefore, to recognise in a system of laws 
a distinction in respect to the so-called personal property 
that is perfectly arbitrary, and which forty-eight sover- 
eign States of the Federal Union may alter at pleasure, is 
very likely to give a general result somewhat aldn to that 
obtained by an artist who, in painting a landscape, selected 
a cow as his fixed point of perspective. If the cow had 
remained quiet, the picture might have been satisfactory; 
but as the cow walked off, the details of the picture were 
not harmonious. 
418 



LAND AND PERSONAL PROPERTY. 419 

Value Kelations of Land and Productive Capi- 
tal. — One curious phenomenon attending the remarkable 
changes that have taken place within the last half century 
in the conditions of production and distribution of wealth, 
has been the more rapid increase in all countries of high 
civilization of that portion of their national wealth repre- 
sented by the so-called personal property than in that 
portion represented by the value of land. Thus, in Great 
Britain, at the commencement of the present century, the 
value of land was believed to represent about forty per 
cent of the aggregate wealth or property of the kingdom. 
At the present time it probably does not represent more 
than twenty-five per cent of such aggregate. In the 
United States the increase in recent years of personal prop- 
erty has been so remarkable as to entitle it to be regarded 
as phenomenal; and it can not be doubted that in highly 
civilized and densely populated States, like New York, 
Massachusetts, Ehode Island, etc., the aggregate of prop- 
erty classed as " personal " is greater in actual value than 
the aggregate of " real " property. In the great American 
cities the value of personal property probably closely ap- 
proximates the English proportion. A recent report of the 
Boston Business Association expresses an opinion that the 
value of the personal property of that city is three or four 
fold that of its realty ! And yet the amount of personal 
property made available for tax assessments shows every- 
where a remarkable decrease; and this, notwithstanding 
a great concurrent increase in population and in the as- 
sessed value of real estate. It may also be regarded almost 
an economic axiom, that universally the market value of 
the aggregate of land and that of the aggregate of other 
productive capital are equal; and for the reason that the 
market value of land is merely the reflection of the value 
of the productive capital placed upon it and its immediate 
vicinity. It would therefore seem to be certain that the 
decline in the valuations of personal property, above noted, 
is not real, but simply represents the failure and utter in- 
efficiency of the existing laws which have been enacted 
with a view of assessing and collecting taxes upon such 
property. 

The following are some of the most striking illustra- 
tions of the decline of tax valuations of personal property 



420 THE THEORY AND PRACTICE OF TAXATION. 

in recent years in the United States: Thus, in 1866, the 
valuation of the city of Cincinnati, Ohio, for purposes of 
taxation was, realty $66,454,602, personalty $67,218,101. 
In 1892 — twenty-six years after — the tax valuation of the 
real estate of the city was $144,708,810, while its personal 
property had decreased to $44,735,670; or, in other words, 
while the personal property of Cincinnati returned for 
taxation in 1866 was- greater than the returned amount 
of real estate, the amount returned in 1892 was only about 
a quarter as much as the real estate; and yet during this 
quarter of a century the city of Cincinnati nearly doubled 
its population, and undoubtedly increased its wealth in a 
far greater proportion. In the city of Boston the value of 
the realty returned for taxation in 1868 was $287,635,800, 
and of personalty $205,937,300. In 1890 the correspond- 
ing figures were, realty $619,990,275, personalty $202,- 
051,525, a disproportionate gain of realty of $417,938,750. 

In the State of Massachusetts in 1862 personalty was 
assessed at $309,000,000 to $552,000,000 of real estate, or 
in the ratio of fifty-six per cent of the latter. In 1891 the 
personalty was $556,000,000 to $1,679,000,000 of real 
estate, or in the ratio of thirty-three and a third per cent. 
That is, the personalty of the State in twenty-nine years 
increased only $243,000,000, while the real estate increased 
$1,123,000,000, or nearly five times as much in the same 
time. " This simply means that more and more personal 
property, under the rigid tax system of Massachusetts, 
escapes taxation. The real estate can not have increased in 
value without an increase in personal wealth with which 
to increase the demand for it. Eeal estate does not make 
a demand for itself." In 1870 the personal property of the 
entire State of Massachusetts returned for taxation repre- 
sented an average of $345 per capita. 

It will be noted that the above exhibits represent the 
lengthened experience of the two States which adhere most 
closely to the infinitesimal theory of taxation; have a sys- 
tem of most comprehensive and explicit laws, framed by 
officials and enacted by legislators who believe in their 
theory, and a system of arbitrary administration that finds 
no parallel, except in thoroughly despotic countries, and is 
wholly antagonistic to the principles of a free government. 

The experience of other States, where, under substan- 



UNTAXED PERSONAL PROPERTY. 421 

tially the same provision for the taxation of personal prop- 
erty, the administration is less rigorous, is also most in- 
structive. 

In Jersey City, N. J., the tax valuation in 1892 of realty 
was $78,176,000, and of personalty $6,539,750. In 1870 
the valuation of realty in the city of Brooklyn, N. Y., was 
$183,689,000, and of personalty $17,559,980. In 1893 
the corresponding valuations were. $486,497,000 realty, 
$17,559,000 personalty; and of the latter only $7,078,000 
was assessed against individuals, the remainder being prop- 
erty of banks and corporations. Of the entire property 
of Brooklyn taken cognizance of by its tax officials in 1893, 
only 1.35 per cent of the whole was personalty proper. 

In 1870 the entire value of the personalty of the city 
of New York, including bonds, jewels, pictures, furniture, 
bric-a-brac, etc., was put down by its assessors for taxation 
at $281,142,696; in 1893 the corresponding valuation was 
$370,936,000, of which less than half was personal estate 
proper, the remainder being various forms of corporate 
property, although it is reasonably certain that less than 
twenty men, residents of the city, held personal property 
in excess of this amount. 

In 1870 the personal property of the entire State of 
New York returned for taxation represented an average of 
$99.13 per capita. In 1893 this average had fallen to 
$68.75 per capita. In Connecticut, in 1855, as before 
shown, State stocks, railroad, city, and other bonds, and 
money at interest constituted about ten per cent of the 
aggregate assessed valuation of property of the State. In 
1885 the corresponding proportion for taxation was three 
and three fourths per cent. 

Similar illustrations drawn from the recent tax experi- 
ences of nearly every State in the Union might be indefi- 
nitely multiplied, and in the most western States of the 
Union, where the communities are mainly agricultural, the 
opinion of officials is also to the effect that personal prop- 
erty, as a rule, exceeds realty, and to a great extent escapes 
assessment and taxation. 

Another curious and interesting feature of the situation 
is that in all those States where the most minute and thor- 
ough system of questioning with respect to the ownership 
of personal property prevails, investigation shows that, 



422 THE THEORY AND PRACTICE OF TAXATION. 

notwithstanding the acknowledged great increase in wealth 
in the form of personal property in recent years, the skill 
of its owners in concealing it has grown more rapidly; 
or, in other words, in every State in which a vigorous 
attempt has been made to reach and assess all the personal 
property of its citizens, a smaller percentage of such prop- 
erty is taxed to-day than was effected under operation of 
laws a quarter of a century ago. 

Eesults of Recent Administrative Experiences. 
— A notice of some comparatively recent administrative 
experiences in attempting to successfully enforce taxation 
of personal property is especially pertinent at this point. 

In 1879 California proposed a new Constitution. It 
was drafted in accordance with what was supposed to be 
the interest of the agricultural voters of the State, and was 
by them ratified, the merchants, commercial and financial 
interests being almost unanimously arrayed in opposition 
and voting against it. Under this Constitution and the 
laws made in pursuance of it, the results have been thus 
summarized : " Not only were bonds, money, and credits 
taxable, without any deduction on account of debts, except 
from credits, and then only such debts as were due to 
residents of the State of California, but holders of stock 
in corporations were avowedly and intentionally subjected 
to double taxation; first, upon the corporate property, and 
again upon the capital stock, which is merely their evidence 
of title to that property. It was supposed, alike by the 
friends and enemies of the new Constitution, that under 
its operation personal property of every description would 
be thoroughly reached, and at any rate that whatever was 
by any chance overlooked would be more than made up 
by double taxation upon that which was found. The actual 
result has been to falsify all the predictions of both the 
friends and enemies of the Constitution — for it has done 
no good, and very little harm, except in promoting fraud 
— for the reason that the capacity of the patriotic taxpayer 
to commit perjury and the susceptibility of assessors to 
bribery have been altogether underestimated." 

Some of the results have been positively ludicrous. " If 
the assessment returns are to be believed, in nine tenths 
of California there is not a pound of butter ; in four fifths 
of the State the sheep do not produce any wool ; fifty coun- 



EXPERIENCE OF CALIFORNIA. 423 

ties have quantities of beehives, but only four have any 
honey; personal property is vanishing from San Francisco; 
loans of money are becoming unknown in the rest of the 
State; bonds of cities and municipalities of all kinds are 
not held within the State to an amount equal to one sixth 
of the county bonds outstanding alone ; and, finally, money 
has been smitten by a pestilence, two thirds of all that 
there was before the adoption of the Constitution having 
already taken to itself wings, and the remainder being 
evidently on the way. One of the great objects of the new 
Constitution was to tax railroad, telegraph, and telephone 
companies to the last cent of their value. The actual re- 
sult has been that telegraph and telephone companies are 
now assessed for the cost of less than their bare poles, or 
about sixty-five dollars per mile. The railroad companies 
resisted taxation for one or two years, at the end of which, 
by a singularly simultaneous impulse of virtue, some thirty 
boards of supervisors directed their district attorneys 
rigorously to prosecute the railroad companies to the 
uttermost of the law. Thirty district attorneys forthwith 
hauled the railroad companies before the magistrates of 
justice. With equal promptness the thirty boards of su- 
pervisors met, and, without any consultation with each 
other, passed resolutions directing the district attorneys 
to compromise all suits at sixty per cent of the amount 
claimed; and the thirty district attorneys obeyed before 
the State officers could put in a protest." 

It was anticipated that the new order of things would 
increase the burden of taxation on the city of San Fran- 
cisco, and especially on personal property and money at 
interest. What actually happened is shown by the follow- 
ing figures: In 1880, before the new laws became opera- 
tive, the city of San Francisco paid taxes on a valuation 
of $68,586,000 of personal property not money, and on 
$19,747,000 of money at interest or otherwise. In 1886, 
after the law had been operative for five years, it paid on a 
valuation of $48,705,000 of personal property, a decline of 
one third, and $6,188,000 of money, a decline of two thirds. 
In 1894, after the law had been in operation for fourteen 
years, it paid on a valuation of $56,130,000 of personal 
property, a decline of $12,454,000, and $7,100,000 of 
money at interest, a decline of $12,647,000. 



424 THE THEORY AND PRACTICE OF TAXATION. 

It was naturally supposed that the new Constitution 
would have great influence in increasing the assessment of 
personal property in the form of tangible, visible merchan- 
dise, and of bonds and credits. But the assessors of San 
Francisco found less of merchandise to tax in 1886 in that 
city than they did in 1880 ; and less in 1894 than they did 
in 1880, while the value of bonds returned by its citizens 
declined from $2,311,000 in 1880 to $449,000 in 1886. 
The total increase in the valuation of merchandise for 
bonds and credits for taxation in the fourteen years from 
1875 to 1889 was less than one per cent. 

The most recent, important, and incontrovertible record, 
however, of administrative experiences on this subject is 
to be found in the report of a tax commission authorized 
by the Legislature of Ohio, composed of four eminently 
qualified citizens — two Eepublicans and two Democrats — 
and presented to the Governor of that State in December, 
1893. It is no exaggeration to say that, since the days of 
the French monarchy under Louis XVI, no report has been 
or could be made more discreditable to the people of any 
country claiming to be civilized, honest, and law-abiding. 

The report first shows that Ohio has " the most efficient 
and minute scheme " of listing in duplicate " all classes of 
property " — dogs specially included — " which has been de- 
vised in any State." " Every citizen is bound under oath 
to make a complete return of his property," embracing all 
forms of personalty. " If he declines to make the oath 
required by law, a penalty of fifty per cent is added." This 
listing system in Ohio is characterized by the commission 
as like " the assessment list used in Germany in mediaeval 
times (1531)," which it further asserts "has been aban- 
doned everywhere in Europe." The statute provides that 
a designated official "may through the probate court call 
before him the citizen and examine him if he suspects 
that the return is not a complete one " ; and in addition 
to all this the law empowers each county to contract with 
such persons — " tax inquisitors " — who may give informa- 
tion as to any personal property that has been " improperly 
withheld from the returns " ; and who shall be " rewarded " 
to the extent of twenty per cent of the amount of tax " re- 
covered through their efforts." 

From a large amount of evidence collected by the com- 



PERSONAL PROPERTY IN* OHIO. 425 

missioners and officially published by the State, the fol- 
lowing selections illustrate the efficacy and workings of this 
system and its statutes : 

For the year 1891 the gross amount of revenue col- 
lected in the whole State of Ohio through the operation of 
the tax inquisitorial law was about $750,000, or about two 
per cent of the entire taxes of the State. For the nine 
years from 1885 to 1893 inclusive, during which time this 
act was operative in Hamilton County, which is mainly the 
great and rich city of Cincinnati, the whole amount of taxes 
paid by its citizens was about $50,000,000, of which less 
than $1:00,000 accrued through the operation of this 
agency. It is probable, however, that through its moral 
influence the taxpayers were induced to make larger re- 
turns of personal property than they would otherwise do. 
On the other hand, the commission reports, as a general 
effect of the " tax inquisitor law " in city countries that 
when a man of large wealth is made to pay through its 
agency he leaves the State; but in the country counties, 
as the man of means is not able to sell his property and 
remove from the State, he is forced to remain and pay 
the tax. 

Again, the laws of Ohio require that all moneys owned 
by its citizens shall be annually returned for taxation. 
For the whole State the tax commission reports that there 
was on deposit in the year 1892 to the credit of individuals 
in national, State, and private banks, and exclusive of 
moneys redeposited by one bank with others, at least $190,- 
000,000, " and probablv a much larger amount." Of this 
$190,000,000, there was returned in 1893 for taxation a 
little over $38,000,000. In connection with this experi- 
ence the commission calls attention to the following other 
extremely significant facts : " Of this estimate of $190,- 
000,000, about 128,000,000 was deposited in the banks of 
the five counties containing the cities of Cincinnati, Toledo, 
Cleveland, Dayton, and Columbus. These same counties, 
however, returned for taxation only $6,088,096, while the 
remainder of the State, having about $70,000,000 in bank 
deposits, returned over $32,000,000. In the spring of 
1892 there were on deposit in the various banks (national, 
State, and savings) of the city of Cleveland about $63,- 
000,000. Of this money there was returned for taxation 
28 



426 THE THEORY AND PRACTICE OF TAXATION. 

in that same year only $1,800,593 ; and about half of this 
sum was derived from the townships outside of the city." 

The final conclusions of the commission were that 
" while in the country counties" (of Ohio), "where the 
assessor is personally acquainted with the circumstances of 
the taxpayer, and knows his wealth, the taxation of in- 
tangible property is perhaps feasible, it is in the city coun- 
ties " an utter failure. The general property tax has be- 
come in the city counties " (of the State), " to a very con- 
siderable extent, a tax upon tangible property only; and 
that no appreciable part of the intangible property exist- 
ing in the city counties is reached by our method of taxa- 
tion." 

The net result of all the comparisons made by the 
Ohio commissioners between city and farming districts 
finally goes to prove that the tax upon personal property 
makes farmers pay from four dollars to seven dollars where 
it makes the residents of large cities pay one dollar. 

Speaking generally of the effect of this Ohio scheme 
of taxation the commission further says : 

" The system as it is actually administered results in 
debauching the moral sense. It is a school of perjury. It 
sends large amounts of property into hiding. It drives 
capital in large quantities from the State. Worst of all, it 
imposes unjust burdens upon various classes in the com- 
munity: upon the farmer in the country, all of whose 
property is taxed because it is tangible ; upon the man who 
is scrupulously honest; and upon the guardian, executor, 
and trustee, whose accounts are matters of public record. 
These burdens are unjust because by the system as admin- 
istered these people pay the taxes which should be paid by 
their neighbours." And the commissioners finally add that 
"these conclusions are in accord with all current authori- 
ties on the subject." * 

That this claim of accordance on the part of the Ohio 
commissioners is fully warranted, attention is next asked 
to the conclusions of other State commissions which within 
a comparatively recent period have also officially investi- 
gated and reported upon this subject. Thus, a tax com- 

* See Carver, The Ohio Tax Inquisitor Law, in the publications 
of the American Economic Association. 



STATE TAX COMMISSIONS. 427 

mission of New Hampshire in 1876, after recognising the 
inefficiency of the existing laws for the taxation of personal 
property and " their corrupting and demoralizing influ- 
ences," " frankly admit that they are unable to frame any 
law to which a free people would submit, or should be asked 
to submit, that will bring this class of property under 
actual assessment more effectually than it now is." An 
Illinois commission in 1886 asserted that the existing sys- 
tem "is debauching to the conscience and subversive of 
the public morals — a school for perjury, promoted by law." 
A Connecticut commission in 1887 reported that "the 
results of an investigation of nearly three years into the 
workings of our tax system have brought us to the conclu- 
sion that all items of intangible property ought to be 
struck out of the list. As the law stands it may be a 
burden upon the conscience of many, but it is a burden 
on the property of the few, not because there are few who 
ought to pay, but because there are few who can be made 
to pay." A West Virginia commission in 1884 asserted 
that "the payment of the tax on personalty" (in the 
State) " is almost as voluntary, and is considered pretty 
much in the same light as donations to the neighbouring 
church or a Sunday school." 

In Massachusetts, where the law admits no offset of 
debts against visible and tangible property, and is regarded 
as complete, and where its execution is acknowledged to be 
most arbitrary and inquisitorial — some towns publishing 
each year every known item of each man's personal prop- 
erty, even down to the family pig and a string of sleigh 
bells — the most intelligent officials admit that their sys- 
tem is a comparative failure ; and almost a complete failure 
as to reaching evidences of indebtedness, which, as before 
shown, constitute in modern times so large a part of the 
personal property of every civilized community. 

In the State of New York, where the letter of the tax 
laws in respect to the subjects of taxation is nearly the 
same as in Massachusetts and Ohio, but the administra- 
tion less stringent, and where the aggregate of personal 
property nearly or fully equals in value the aggregate of 
real property, the proportion of the former returned for 
taxation is not in excess of one fifth of the total assessed 
valuation; while in the great city of New York, with a 



428 THE THEORY AND PRACTICE OF TAXATION. 

population of over a million and a half, not one per cent of 
her citizens stand upon the books of the assessors as pos- 
sessing any personal property subject to taxation other 
than shares in banking institutions. 

In Wisconsin the State appears to have drifted into the 
same condition of things as in New York, and the attempt 
to tax personal property has been practically abandoned, 
except in the small villages and rural districts. In Georgia, 
which is reported to be well served by its taxing officials, 
its comptroller asserts that in respect to the mere article 
of merchandise which can be seen and handled, not fifty 
per cent is returned for taxation, and that in the city of 
Savannah in 1886 not ten watches were subjected to 
taxation. 

To complete this record of experience it is desirable to 
add that there is not a single economist or financier of note, 
either in the United States or Europe, who upholds the 
" infinitesimal " or " general property " tax as a desirable 
or essential feature of any fiscal system, its characteriza- 
tion by M. Leroy-Beaulieu, the celebrated French econo- 
mist, being that " a cruder instrumentality of taxation has 
rarely been devised." 

Again, in every country on the globe where a direct 
tax on personal property in the hands of individuals has 
been laid, the system has exhibited the same features of 
badness. No experience in any country has suggested any 
practical improvements of it. It has never been improved ; 
it has never grown better; it has always, under all circum- 
stances, exhibited a tendency to grow worse. It is a fact 
creditable to the superior intelligence of other lands that 
it no longer is found in any civilized country on the globe, 
the United States alone excepted; and in this country it 
is no longer found in Pennsylvania, New Jersey, and 
perhaps some other States. 

Prof. E. A. E. Seligman, of Columbia University, 
who has written much on this subject, sums up the result 
of his investigations in the following language : " It will be 
no exaggeration to say that the general property tax in 
the United States is a dismal failure. Every country also, 
with the exception of Holland and the States of the Fed- 
eral Union, has abandoned this system of tax as something 
wholly impractical. In recent years in both England and 



KEFORM IN TAXATION. 429 

France the necessity of raising increased revenues has 
drawn especial attention to the subject of local taxation; 
but in neither of these two countries has any prominent 
speaker or writer advocated the direct taxation of personal 
propert}^ or even alluded to the subject, except to scout 
the very idea of such a proposition." * 

And yet, notwithstanding this record of disastrous and 
discreditable experience, and the opposition to the almost 
unanimous judgment of all whose investigations warrant 
the expression of opinion, the strength of popular prejudice 
in the United States in favour of the infinitesimal system 
of taxation is so great as to make the substitution of any 
better system a matter of very great difficulty, and perhaps 
a present impossibility. " Although all Europe, as already 
pointed out, has tried and discarded taxation of personal 
property, our own people have grown up under the opposite 
system. Every State tries to tax it. No American has 
any personal experience of a system which does not pre- 
tend to tax it. The proposition to dispense with such taxa- 
tion, therefore, strikes every American as an experiment. 
Few Americans know or care anything about the experi- 
ence of other nations." 

There is, however, at the present time, some gratifying 
evidence of a change in popular sentiment in favour of 
radical tax reforms. Thus, in October, 1897, the grand 
jury of the county of New York made a presentment on 
the subject of taxation under the following circumstances : 
A complaint was made against the tax officials, charging 
undervaluations of property, and therefore perjury, but 
ftie grand jury finds in effect that the State laws are of 
such a character that assessors are almost inevitably led 
into blunders, and it recommends a general revision of 

* Holland, by reason of her immense national debt, the largest, 
comparatively, of any country, has been obliged to maintain a 
most rigorous and extensive system of taxation in order to raise 
revenue sufficient to the wants and requirements of the state. But 
it has been prominently brought out, in recent years, that the 
decadence of Holland dates almost from the hour when taxes were 
imposed on manufactories, commerce, fishing industry, and moneyed 
capital. Business went elsewhere, and with the decline of business 
the ability to pay taxes diminished, and the burden of taxation 
augmented. See Journal des Economistes, November, 1871; also 
Principles of Political Economy, J. R. McCulloch, pp. 470, 471. 



430 THE THEORY AND PRACTICE OF TAXATION. 

the tax laws imposing upon the State the duty of assess- 
ing personal property, so that local expenditure may be 
paid by real-estate taxes alone, and the " question of con- 
tinuing or abolishing personal taxes " be "fought out on 
State lines/ 7 

A special tax commission, appointed by the Governor of 
Massachusetts, and composed of men of wide financial ex- 
perience and business ability, after careful study of this 
subject, reported in October, 1897, in favour of the entire 
exemption of personal property and the substitution of 
other agencies (to be hereafter noticed) for the collection 
of revenue. 

A fact of historical interest which ought not to be over- 
looked in this connection is that whenever a system of in- 
finitesimal taxation (or a general property tax) has been 
projected, its authors have been led, as it were, by instinct 
to the conclusion that its execution, with any degree of 
effectiveness, must depend upon the employment of extraor- 
dinary and arbitrary measures. Thus, the old Romans, 
who first notably established the taxation of personal prop- 
erty at the period of the decadence of the empire, and 
who were not troubled with any restrictions of a consti- 
tutional character, or any very nice notions about personal 
liberty or general morality, clearly perceived this, and ac- 
cordingly invested their tax officials with the power of 
administering torture as a means of compelling informa- 
tion (answering questions) and enforcing payment; and 
that the tax officials were not backward in using the power 
with which they were invested is proved by a variety of 
evidence. * 

Thus, Zosimus, who wrote in the fifth century a. d., 
states that the period of the tax collection upon general 
industry "was announced by the tears and terrors of the 
citizens, who were often compelled by the impending 
scourge " to meet their obligations ; and Gibbon, in treat- 
ing of this feature of Roman history, in a measure justi- 
fies the proceeding in the following language : " The secret 
wealth of commerce and the precarious profits of art and 
labour are susceptible only of a discretionary valuation; 
and as the person of the trader supplies the want of a 
visible and permanent security, the payment of the im- 
position, which, in the case of a land tax, may be obtained 



DOOMING IN MASSACHUSETTS. 431 

by the seizure of property, can rarely be extorted by any 
other means than those of corporal punishment/' 

And it is also especially worthy to note that in every 
instance in which attempts have been made of late in the 
United States to remedy the recognised imperfections and 
inequalities of existing systems of local taxation, the per- 
sons intrusted with the duty, possibly without knowing, 
and probably without caring, what were the experience and 
custom of the old Eomans, have been led by their instincts 
and intuitions to go as far in the torture direction for 
the obtaining of taxes on personal property as the con- 
ditions of our modern civilization and the state of public 
opinion would allow. 

The most curious and confirmatory evidence of this 
is to be found in a method of procedure adopted in the 
city of Boston, Massachusetts — a method which has no 
parallel except in the records of the middle ages and of 
the Inquisition, and constitutes in itself a satire upon any 
claim to the enjoyment of a wholly free and enlightened 
government. For failing to obtain satisfactory information 
about the private affairs of any individual the chief assess- 
ors and their subordinates in that city, to the number of 
some fifty, meet in secret session in a large upper chamber 
set aside for the purpose, and appropriately termed the 
" dooming chamber/' when the citizen in question, without 
being present either by counsel or in person, is arbitrarily 
doomed to the payment of any sum which a majority of 
those present may think proper, and from which " doom- 
ing " there can be no appeal. 

The following record of the actual working of this 
system may be thus illustrated : During the year 1889 the 
whole amount of taxable personal property which the as- 
sessors of Boston were able to discover, exclusive of bank 
stock, was $39,000,000, of which amount $14,570,000, or 
thirty-seven and a half per cent, was returned as visible, 
and $27,650,000 as invisible. Being dissatisfied with this 
result, which was all that was justified by any facts which 
the assessors could state, they proceeded to multiply it four 
and a half times by a mere guess. In their " dooming " 
chamber they guessed that personal property, other than 
bank stock, ought to be valued at $186,000,000; and the 
citizens of Boston were compelled to pay taxes upon that 



432 THE THEORY AND PRACTICE OF TAXATION. 

amount. Could anything be more monstrous or absurd 
than a system of taxation which, even when administered 
by phenomenally honest and competent men, produces 
such results ? 

The Use and Value of Oaths as an Adjunct oe 
Taxation. — Consideration is properly asked in this con- 
nection to the use and value of oaths, an increase in the 
number and stringency of which is often regarded as essen- 
tial to effective and equal taxation. It is the all but unani- 
mous opinion of officials who of late have had extensive 
experience in the administration of both the national and 
State revenue laws that oaths as a matter of restraint, or 
as a guarantee of truth in respect to official statements, 
have in a great measure ceased to be effectual; or, in other 
words, that perjury, direct or constructive, has become so 
common as to almost cease to occasion notice. In fact, 
there has come to be a feeling in the community that an 
oath in respect to matters in which the Government is a 
party is a mere matter of form, of mechanical procedure, 
and that its violation, especially with a mental reservation, 
and when the interest of other individuals is not spe- 
cifically affected, does not in itself constitute a crime. The 
fact that the assessors of almost every State every year 
make oath that they have valued all property at its actual 
value, when they know they have not, constitutes one proof 
of the truth of this assertion. The everyday entry of goods 
at the customhouse at undervaluation constitutes another; 
the enormous frauds committed in recent years under the 
internal revenue laws of the United States, which in the 
case of distilled spirits entailed a loss in a single year of 
over $130,000,000, and in which the taking of false oaths 
was at every step an essential feature, constitutes a third; 
while of individual examples, which every assessor of ex- 
perience can detail, the record would be almost inter- 
minable. 

During the past few years the low tone of commercial 
morality in the United States has been a fact generally 
recognised and much commented upon ; but it has not, that 
we are aware, been made a subject of inquiry by those 
to whom the guardianship of public morals is particularly 
intrusted. How far the existing system of laws relating 
to taxation — national and State — are justly chargeable 



DODGERS OF TAXATION. 433 

with the results to which reference has been made, or how 
much in the division of responsibility is to be set down to 
the account of those who violate the law, and how much 
to those who, forewarned of the weakness of human nature, 
deliberately make laws which especially lead men into 
temptation, are yet unsettled questions. 

A point of great interest and importance in this connec- 
tion, though often overloked, is that even if all the States 
of the Federal Union should entirely exempt personal prop- 
erty within their territory and jurisdiction from taxa- 
tion, it would nevertheless, owing to the dual nature of the 
Government of the United States, be subject to a large 
measure of heavy and disproportionate taxation. Thus, 
the expenditure of the Federal Government, which repre- 
sents taxation, was in 1896, including the cost of revenue 
collection, in excess of $445,000,000, not one cent of which 
was derived from taxes on real estate.* The aggregate of 
annual taxation by States, counties, cities, municipalities, 
and the District of Columbia for the same year is esti- 
mated by reputable authorities to have been about $400,- 
000,000, of which at least one fifth was assessed or was col- 
lected from personal property. If real estate paid all the 
State taxes, personal property therefore would still be 
paying all the United States Government taxes, or a large 
excess of its equitable share of any or all national taxation. 
A claim that any personal property owner is justified in 
protecting himself against such extortion in any and every 
legal way has much, therefore, to be said in its favour. 
When such protection can not be effected legally, he has 
only to leave the State for others that are not extortionate 
oppressors of capital. But who can not perceive on re- 
flection that personal property (capital) must be largely 
used by its owners and at fair rates at their residence; 
and that the home of such capital will show the benefit in 
increased local business, increased population, and in- 
creased value of real estate by its use? Why, then, so 
much overrighteous talk of personal property owners dodg- 
ing taxation? 

Logical and ingenious as have been the arguments in 
opposition to the legal exemption of personal property 

* Real estate pays no Federal Government tax. 



434 THE THEORY AND PRACTICE OF TAXATION. 

from taxation, the citation and consideration of the un- 
disputed experience of all countries, people, and ages are 
all that is necessary to refute and disprove them. There 
was a time when nearly all men believed and taught that 
the world was flat, and when the few who lisped to the 
contrary exposed themselves to a charge of religious heresy 
and punishment. But a comparatively short navigation 
experience effectually put an end to all controversy on this 
subject; and it is doubtless only a question of time when 
personal property will be exempt from governmental taxa- 
tion, because no system has ever been devised, or is likely 
to be, which will enable a state to tax it with any approach 
to uniformity and equity. 

Origin and History of the General Property Tax. 
— The idea that in order to tax equitably it is necessary 
to assess everything capable of resulting in the obtain- 
ing of revenue is not original with the American people. 
Its inception dates back to the dawn of civilization, and 
its development may be regarded as in the nature of an 
economic evolution. In the incipient stages of society, 
as already pointed out, property consisted exclusively of 
things tangible and visible — lands, buildings, cattle, slaves, 
agricultural products, household effects, and implements — 
and what was exacted by rulers or chiefs of their subjects 
was arbitrary proportions of such kinds of property or 
of personal service, and was not in any proper sense taxa- 
tion, but tribute. For thousands of years there were no 
credits or material evidences of indebtedness, as there are 
none at the present time among barbarians or half -civil- 
ized people; for a knowledge of letters, of the art of 
writing, and a somewhat durable and portable material 
to write upon were essential prerequisites for their exist- 
ence, the earliest evidence of the recognition of a^thing 
like a mortgage being the inscriptions on certain clay tab- 
lets excavated from the ruins of the ancient cities of Baby- 
lon and Assyria, which were evidently the highest results 
of long and slowly developing civilization. In fact, in the 
early stages of society there was no important form of 
capital other than landed property and the instrumentali- 
ties, including slaves, for its cultivation, and so far as the 
system for obtaining revenue for the rulers or state merited 
the name of taxation, it was practically a " land " tax. 



ORIGIN AND HISTORY. 435 

As civilization advanced, slavery gradually broke down ; 
trade or traffic between individuals or adjacent communi- 
ties extended and became commerce ; free labour appeared ; 
capital developed and multiplied the forms of visible, tan- 
gible property. Then the system of obtaining revenue began 
to have the characteristics of a general property tax; and 
as the coincidence of great value with small bulk in some 
forms of tangible, visible property favoured concealment, 
some methods of obtaining revenue from property other 
than mere inspection became necessary, and were obtained 
by the Eomans in the latter days of their empire by en- 
dowing their assessors and taxgatherers (as before shown) 
with the power to administer torture to unwilling tax- 
payers, a method that was followed and perpetuated until 
within a very recent period by the rulers of most Asiatic 
countries; and in later days, when credits came into exist- 
ence and extensive use, and titles to property and evidences 
of indebtedness were regarded as property, although in- 
tangible and invisible, a method for discovering and assess- 
ing the same, as approximate to actual torture as a higher 
civilization would sanction, was everywhere adopted. 

And how such methods continue to exist and their 
practice be regarded with favour in states and communities 
claiming to be in the highest degree civilized and enlight- 
ened, finds proof and illustration in the following circum- 
stance: In 1874 the Legislature of Massachusetts created 
a commission of three persons to inquire into the expedi- 
ency of amending the laws of that State in respect to taxa- 
tion, and placed at its head the chairman of the Board 
of Assessors of the city of Boston, a gentleman long identi- 
fied with, if not the originator of, the idea of making an 
arbitrary, irresponsible " dooming chamber " an essential 
feature of tax administration. At the outset this com- 
mission was evidently impressed with the necessity of 
vindicating the " infinitesimal " or " general property ". 
tax system, then and at the present time especially favoured 
and fully exemplified in their State. And they set about 
it in the following manner: with the Declaration of In- 
dependence before them, maintaining it to be in the nature 
of a self-evident truth that " all men are endowed by their 
Creator with certain inalienable rights/' and " that among 
these are life, liberty, and the pursuit of happiness," the 



436 THE THEORY AND PRACTICE OF TAXATION. 

commission gravely announced that " the individual per- 
son" (in Massachusetts) "lias no individual rights except 
that to his own righteousness" thus laying a sure founda- 
tion in justification for a recurrence in Massachusetts to 
the torture tax system of the ancient Eomans if its tax 
administrators should consider it expedient. 

After the dissolution of the Eoman Empire and the 
subsequent reconstruction, as it were, of government and 
society in Europe during the early feudal period, and 
when land was practically the only form of wealth, the 
payments exacted for the support of the governing powers 
— kings, barons, knights, etc. — were essentially and almost 
exclusively in the nature of land taxes; and the terms 
" danegeld" a charge on lands at so much per hide, or an 
area of about one hundred acres; " scutage" a charge on 
tenants in lieu of military service; " carucage," a charge 
on "plough lands"; " talliage" (from the French tailler, 
to cut off), a charge on the tenants of royal manors, and 
the like were designations of the different forms of such 
assessments at different periods. As civilization advanced 
and was accompanied, as at a more primitive period, with 
an increase in the forms of personal property, a combina- 
tion of taxes on land and movables, or a general property 
tax system, developed and was adopted by all the nations 
of western Europe with all the despotic adjuncts which 
seemed necessary to make its enforcement successful. The 
ultimate result of such a system was what might have been 
anticipated. From a very early period it occasioned great 
popular dissatisfaction. In Milan, Italy, as early as 1208, 
it was enforced with such severity " that the assessment 
book was known as the libra del dolore" In Florence it 
became so honeycombed with abuses and the load of taxa- 
tion fell with such crushing force on the small owners of 
property that imminent popular revolution and disorder 
compelled its essential modification. As wealth increased, 
evasions of the tax increased in a greater proportion in 
every community, leaving the burden of the system, as now 
in the United States, on that class of the population — 
mainly the agricultural — that are least able to bear it. Sir 
Eobert Cecil stated in 1592 that there were not five men 
in London assessed on their goods at two hundred pounds 
(one thousand dollars) ; and Sir Walter Raleigh stated 



ABOLISHED IN EUROPE. 437 

in 1601 that "the poor man" (in England) "pays as 
much as the rich/' In Florence in 1495 only fifty-two 
persons paid the tax on trade capital, although the amount 
of such capital must have been immense. Marshal Vauban, 
of France, who wrote on taxation about 1700, stated that the 
taille personnelle was assessed only on the poorest classes. 
The result has been that as the difficulty of assessing visible 
personal property and the impossibility of reaching invisi- 
ble and intangible personalty became apparent, the tax was 
gradually modified, and finally abolished in all European 
countries, except possibly Switzerland and Holland, where 
its nature has very little of its original and typical char- 
acter. One of the first acts of the French National Assem- 
bly in 1789 was to abolish it entirely. A provision for 
taxing personal property under a nominal land tax con- 
tinued to exist on the statute book until 1833, when, 
through constant exemptions and systematic evasions, the 
annual revenue accruing from the same had run down to 
the sum of eight hundred and twenty-three pounds (four 
thousand one hundred and fifteen dollars). It is also 
interesting to note that the people of Europe have been 
so long exempted from a general property tax that their 
leading writers on economic or fiscal subjects rarely discuss 
it or even seem to have any knowledge of its characteristics 
or historical experience.* 

The United States is the only civilized country that 
gives no heed to the world's uniform record of experience, 
and thinks it desirable to tax both property itself and its 
shadow. 



* To those desirous of a fuller record of the historical experi- 
ence of the general property tax than has been here given, refer- 
ence is made to an exceedingly interesting and valuable essay on 
the subject by Prof. E. R. A. Seligman, of Columbia University, 
published in Essays on Taxation, New York, 1895. 



CHAPTEE XX. 

DOUBLE TAXATION". 

One of the inevitable characteristics of a " general 
property tax" is the opportunity afforded for inflicting 
double taxation — i. e., taxation at one and the same time on 
the same person or property, or taxation of the same prop- 
erty a second time in the same year — an opportunity which 
the believers in this system vigorously defend, and its ad- 
ministrators as a rule gladly take advantage of to prac- 
tically enforce. These opportunities exist mainly through 
two assumptions, neither of which is warranted by either 
reason or justice, and is alike antagonistic to any equitable 
and intelligent system of taxation: the first, in respect to 
the situs of personal property, and the second, as to origin 
and nature of property; and to these, in the above order, 
attention is next invited. 

Personal property for purposes of taxation is popularly 
divided into two classes — namely, things movable, tangible, 
and visible, and things wanting in corporality or bodily 
presence, and therefore, as a rule, intangible and invisible. 
To the former has been given the general name of " chat- 
tels," and to the latter that of " credits " ; under which 
latter name or title are included not only book accounts, 
bills payable, promissory notes, bonds, mortgages, deeds, 
bank deposits, certificates of indebtedness, and the like, 
but also shares of corporate stock, and possibly shares in 
any partnership. Adopting a popular theory, that credits 
are property, their aggregate value in all civilized countries 
can not, probably, be reasonably estimated at less than one 
half of the aggregate value of all chattels and real estate. 

Situs of Personal Property. — As has been already 
pointed out, it is in the nature of an economic axiom and 
a fundamental legal principle that the power of every state 
438 



SITUS OF PERSONAL PROPERTY. 439 

to tax must be exclusively limited to subjects within its 
territory and legal jurisdiction. This economic axiom and 
legal principle is recognised in nearly all countries claim- 
ing to be civilized; the principal exceptions being in the 
States of the Federal Union, where it is violated in respect 
to both theory and practice — more especially in the State 
of Massachusetts, the statutes of which define personal 
estate for purposes of taxation so as to include "goods, 
chattels, money, and effects, wherever they are; ships, 
public stocks and securities, stocks in turnpikes, bridges, 
and moneyed corporations, within or without the State." 
Thus, for example, if a resident of Massachusetts owns a 
cow which is bodily in another State, that cow is properly 
taxed in the State where the animal is ; but Massachusetts, 
in virtue of the residence of the owner within her territory, 
imposes upon him a second tax for the same cow. Again, 
owners of shares in corporations chartered and located in 
Massachusetts are taxed through the corporation, and their 
shares are free from any further taxation. But if the 
same persons are shareholders in corporations created and 
established by other States, and the real and personal prop- 
erty of which are fully taxed where situated, they are 
subject to a second tax in Massachusetts on the assumed 
local value of the interest of their citizens in such extra- 
territorial corporations. 

Under this system, moreover, the same property may 
be, and often actually is, subjected to not merely double 
but triple taxation, which sometimes practically amounts 
to confiscation. Thus personal property belonging to a 
citizen of Massachusetts, but located in Chicago, would 
be properly taxable there, because within the territory and 
under the protection of the taxing power. It would, how- 
ever, be taxable to the owner in Massachusetts because of 
his personal residence in that State; and the owner would 
also be liable to taxation in Massachusetts by reason of his 
income from the same property. The following case of 
actual and comparatively recent experience constitutes both 
proof and illustration of the accuracy of this statement: 
A lady of a Western State, for the sake of availing her- 
self of certain educational advantages, removed to a town 
in Massachusetts near Boston, and benefited the town by 
building a fine residence therein. Her property, which was 



440 THE THEORY AND PRACTICE OF TAXATION. 

held by a trustee in Indiana, was taxed to him by reason 
of his legal holding in that State. The property itself, 
mainly in another State, was taxed there, and properly, 
by reason of its location; but at the end of her first year's 
residence the lady was horrified to learn that a third tax 
on her income was demanded of her by the tax laws of 
Massachusetts. " And this," the person communicating 
these facts adds, " will, if enforced, be a decree of my per- 
sonal banishment from the State as effectual as that which 
the State formerly launched against Roger Williams and 
the Quakers." Can any one doubt that human nature, 
as ordinarily constituted, will protest against, and success- 
fully evade such laws ? Would it not be well in discussing 
this subject to mention also that it was a question of taxa- 
tion that gave liberty to the American colonies, and that 
the principle that the people of Boston and their ministers 
once mainly relied upon to justify their destruction of im- 
ported tea, which they regarded as unjustly taxed by even 
a small amount, was " that resistance to tyranny was obedi- 
ence to God " ? 

The claim or argument, however, with the advocates 
of such an unjust system now set up in its defence is not 
a theological one, but that personal property (more espe- 
cially what is termed in law choses in action, or credits, 
titles, notes, bonds, mortgages, which are in their nature 
incorporeal, and therefore invisible and intangible) has no 
situs away from the person or residence of the owner, but is 
deemed to be present with him at the place of his domicile. 

This rule or fiction of law originated, according to 
Savigny, in Rome, and acquired the designation of " mobilia 
personam sequuntur" ; but its applicability to property was 
never held to extend beyond Roman territory. Subsequent- 
ly it became a device of international comity, which the 
Supreme Court of Vermont (Catlin vs. Hall, 12 Vermont, 
152) has declared was subsequently "adopted from con- 
siderations of general convenience and policy, and for the 
benefit of commerce " ; and which, according to every prin- 
ciple of common sense and equity, was never invented 
with a view of its being used as a rule to govern and define 
the application and scope of taxation, or was intended to 
have any other meaning than that for the purpose of the 
sale, distribution, and other disposition of property any 



TANGIBLE PROPERTY TAXED. 441 

act, agreement, or authority which is sufficient in law where 
the owner resides shall pass the property in the place where 
the property is; and more especially to facilitate the dis- 
tribution of decedents' estates, by enabling parties to dis- 
pose of their property without embarrassment from their 
ignorance of the laws of the country where it is situated.* 

How comparatively recent, moreover, has been the 
extra-territorial application of the rule or principle under 
consideration to taxation, is shown by the fact that the first 
English colonists and lawmakers who came to America do 
not appear to have brought with them any of the narrow 
and illogical views which have characterized their descend- 
ants. Thus, for example, one of the earliest laws of the 
Massachusetts colony reads as follows : " No man shall be 
rated here (Massachusetts) for any estate or revenue he 
hath in England, or in any forreine partes, till it be trans- 
ported thither. " (Massachusetts Historical Society Collec- 
tions, vols, vii and viii, page 213.) And in the first pro- 
vincial codes of Pennsylvania especial care was taken to 
confine taxation to land, and a very few articles of per- 
sonal property of a visible character, as slaves, horses, and 
cattle, and to exempt from taxation debts, accounts, mer- 
chandise,! and all other items susceptible of concealment, 



* " No fiction," says Blackstone, " shall extend to work an 
injury; its proper operation being to prevent a mischief, or remedy 
an inconvenience, which might result from the general rule of 
law." At any attempt to misapply a fiction, it falls within, and 
is terminated by, that other authoritative maxim of logic and the 
common law, cessante ratione legis, cessat ipsa lex. Another great 
authority in law, Lord Mansfield, says : " Fictions of law hold only 
in respect of the ends and purposes for which they were invented; 
when they are urged to an intent and purpose not within the 
reason and policy of the fiction, the other party may show the 
truth." 

t In a report of the law committee of the Common Council of 
the city of Philadelphia, submitted February 16, 1871, we find the 
following historical review of the tax laws of Philadelphia, under 
the government of William Penn and his successors in the colonial 
government : 

" These laws were framed to avoid repeating errors (in re- 
spect to the taxation of personal property) which had been proved 
by long experience in Great Britain and the Continental countries 
to be inquisitorial in their nature, and by concealment, evasion, 
and perjury demoralizing to the people. We find the Provincial 
Council (1683) first determining that ' a publick tax on land ought 
29 



442 THE THEORY AND PRACTICE OF TAXATION. 

and which would necessitate inquisitorial methods for as- 
sessment. And it was not until 1844, when the State had 
become financially embarrassed by large expenditures, that 
any change was made in such system. But in later days, 
when laws came to be made by legislators who could not 
conceive that anything more was involved in taxation than 
the raising of a given amount of money, the discriminating 
rule in respect to the situs of real and personal property 
was generally adopted and has resulted in the before-men- 



to be raised to defray the publick charge,' and the enactment of 
1700, fixing county rates and levies (which law was not enrolled), 
is believed to have been not larger in the subjects of county rates 
than in the act of 1724, which were real estate, horses, cattle, sheep, 
negroes, and a poll tax. It will be noticed that the personal estate 
here enumerated was visible property not susceptible of conceal- 
ment, and that debts, accounts, merchandise, and ships are no- 
where mentioned. In the several enactments that followed in 
1795, 1799, and 1834, the subjects of county levy were substantially 
the same, sheep and slaves being omitted in the last act, and officers 
added to the last two, and it was not until 1844, a period when 
the State, by large expenditures, had become embarrassed, that, 
by the act of 29th day of April, 1844, mortgages, money owing 
by solvent debtors, stocks, household furniture, public loans, 
watches, etc., were made taxable for county purposes. The at- 
tempted enforcement of this act was so injurious to the people, 
by driving capital and industrial establishments from the State, 
and so evaded in returns, that by common consent the law re- 
mained on the statute book a dead letter until the consolidation 
of the city. 

"At that time (1854) the question was again discussed, and 
although the councils of the city had the power to impose the 
tax rate upon all the subjects of taxation, in the thirty-second 
section of the act of 1844 we find, by the first ordinances, they 
limited the levy to real estate, furniture, horses, cattle, and pleas- 
ure carriages, and so continued until 1864, when an act was passed 
empowering the city to levy taxes on all the subjects of taxation 
contained in that section of the act of 1844, a power which they 
possessed before, but had not exercised. 

" Since that time the authority of the city to levy a tax on 
mortgages, stocks of Pennsylvania corporations, and occupations, 
has been repealed. In considering the enlargement of the subjects 
of levy in this city, the fact must not be lost sight of that the 
State does not impose any tax on real estate for State purposes, 
but derives all its revenue from corporation stocks and loans, mer- 
cantile license, tavern licenses, collateral inheritance, etc., and it is 
estimated that of the gross receipts for 1870 ($6,336,603) more than 
two fifths of the amount ($2,600,000) was derived from the prop- 
erty and business interests of the citizens of this city." 



ARBITRARY TAKING. 443 

tioned absurdities. Another involved absurdity is that 
those States which adopt in their systems of taxation the 
rule of taxing property beyond their sovereignty or terri- 
torial jurisdiction, by reason of the possession of its owner, 
do not follow to a logical conclusion the principle they have 
adopted; for they do not hold that real estate, as well as 
personal property, follows the domicile of its owner for 
taxation. But for this distinction no good reasons can be 
given, although pretexts, claiming to be reasons, may. One 
claim, however, is obviously as good as another. A robber 
who should draw romantic distinctions between watches 
and purses would fail in business. If we are to be robbers 
in practice, let us, at least, secure some grace by honesty 
in our professions, and admit that what we thus take is 
not a tax received as the just recompense of a benefit con- 
ferred, but a compulsory levy, having its cause in our greed 
and its justification in our power; and as these reasons are 
as good for a large levy as a small one, and the whole of 
a man's estate is greater than its part, why not take the 
whole ? Still further, if it is right to tax a man in Massa- 
chusetts, who has come for a lengthened stay from another 
State or a foreign country, for the property he has left 
behind, why not the man who has come for a week? If 
we are to do business upon the principle that " might 
makes right," would it not be a brilliant stroke to station 
ourselves at all the avenues of ingress to a State, and cry 
" Stand and deliver ! " to the passengers ? From the above 
citations and arguments, the conclusion would seem to be 
inevitable that when a State assesses property situated be- 
yond its territory and jurisdiction, and which its laws and 
processes are not competent or able to either reach or pro- 
tect, or assesses one of its own citizens in respect to such 
property, the act has no claim to be regarded as taxation, 
but is simply arbitrary taking, in no respect different in 
principle from confiscation. 

It will also be interesting here to recall some of the 
antecedents of this fiction of law, that personal property, 
irrespective of its situs, follows the owner for the purpose 
of taxation. Its prototype was the ancient tattle, or tax of 
servitude, imposed on persons originally bondmen, or on 
all persons who held in farm, or lease, or resided on lands 
of the suzerain, and from which proprietors or suzerains 



444 THE THEORY AND PRACTICE OF TAXATION. 

of the land were exempt. And as no vassal could at will 
divest himself of servitude or allegiance to his lord or 
suzerain, so the obligation to pay taxes always remained 
upon him as a personal servitude, whatever might be the 
location of his property. In other words, the condition 
of the masses all over Europe during the middle ages was 
not unlike the condition of the slaves in the United States 
previous to emancipation. They (the slaves) had property 
in their possession, and spoke of themselves as owners of 
property, but in reality their property followed the con- 
dition of the servitude of their persons, and both persons 
and property belonged equally to the masters. [The taille, 
furthermore, as a badge of servitude, was supposed to dis- 
honour whoever was subject to it, and degrade him, not 
only below the rank of a gentleman, but that of a burgher, 
or inhabitant of a borough or town ; and " no gentleman, or 
even any burgher," says Adam Smith, " who has stock, 
will submit to this degradation."] Now, the idea embodied 
in the word servitude is an obligation to render service, 
irrespective of or without compensation ; and the idea upon 
which the taxation of personal property in this country 
has been based is, that the property owes a servitude to 
the State where the owner resides, irrespective of its actual 
location, in virtue of the obligation which its owner, as a 
citizen, may owe to the State by reason of the protection 
which the State gives him in respect to his person. 

Again, in old times, the division of property into real 
and personal was wholly unknown ; and under the common 
law all property was classed as lands, tenements, heredita- 
ments, and goods and chattels. " In the course of time, 
however, leases of land for a term of years were classed 
as chattels, and were distinguished as chattels real; while 
other chattels, which did not savour of lands, were called 
chattels personal, e because,' says Lord Coke, ' for the most 
part they belong to the person of a man, or else for that, 
they are to be recovered by personal actions.' And Black- 
stone tells us that i chattels personal are property, and, 
strictly speaking, things movable, which may be annexed 
to, or attendant on, the person of the owner, and carried 
about with him from one part of the world to another'; 
and as instances he mentions money, jewelry, garments. 
Personal property, in fact, consisted almost entirely of 



CHANGES IN LAWS. 445 

such things as could be, and actually were, carried about 
with the person of the owner, or could be easily secreted. 
And Blackstone also tells us that the amount of the per- 
sonal estate of our ancestors was so trifling that they 
entertained a very low and contemptuous opinion of it; 
and that our ( ancient law books do not, therefore, often 
condescend to regulate this species of property/ Nothing 
of an incorporeal nature, as credits, bonds, and mortgages, 
certificates of stock, was anciently comprehended within 
the class of personal chattels, and in fact there were few 
or no such instrumentalities for representing or facilitat- 
ing the exchanges of property. It was otherwise as to 
lands or real property, as to which ( incorporeal heredita- 
ments ' occupied a conspicuous place from the earliest 
times. Such was personal property in the early history 
of our laws. It was of comparatively small importance, 
and its laws were few and simple; while real property, 
being of a fixed and permanent nature, was regarded as 
immeasurably more valuable, and was governed by laws 
of its own, of the most intricate and abstruse character. 
And because of the feudal tenure by which lands were held 
arose the notion, which became a fiction of the law, that 
property, merely personal, always attended the person of 
its owner; while lands, tenements, and hereditaments, 
being fixed and immovable, and of infinitely more con- 
sideration, were held, from their very nature, as well as 
from motives of political policy, to have a situs of their 
own, from which they derived their laws and incidents, 
wholly regardless of the domicile of the owner. Growing 
out of the same reasons, it was also the prevailing opinion 
that, while immovables were exclusively governed by the 
law of locality, movables were controlled, according to the 
same maxim, by the law of the domicile of the owner, and 
not by that of its situs." In the changed condition of 
wealth and property, such a fiction, however suitable and 
useful in primitive times, would now, in many cases, work 
the greatest injustice, and impair the supremacy which 
every government should maintain over everything within 
its territory, both on the ground of public expediency and 
the private interests of its citizens. And, according to 
Wharton (Treatise on the Conflict of Laws, 1872), this 
fiction of law has been universally abandoned upon the 



446 THE THEORY AND PRACTICE OP TAXATION. 

continent of Europe, except in cases as to rights in respect 
to personalty which sprang from marriage and succession, 
and would not, furthermore, in Europe, find a place in 
any discussion of the principles of taxation, except possibly 
in a review of curious tax experiences, and for the reason 
that nowhere, except in the United States, is there any sys- 
tem of extra-territorial taxation, or any tolerance given to 
the ideas upon which it is founded. 

This question of extra-territorial taxation has been 
raised repeatedly before the highest courts of the United 
States, and its illegality in respect to visible, tangible prop- 
erty is believed to have been in every instance affirmed. 

Thus in the State of New York, up to the years 
1861-'62, the rule of assessment of personal property ap- 
pears to have been in accordance with that now recognised 
in Massachusetts — viz., that it follows the owner under 
all circumstances; but in that year a case of much im- 
portance was carried up to its Court of Appeals under 
the following circumstances : One Hoyt was taxed in the 
city of New York for personal property, and resisted the 
taxation on the ground that, although he had personal 
property outside of the State, he had none within the State 
in excess of his just debts and liabilities; the property in 
question without the State being capital employed in busi- 
ness in New Orleans, and farm stock and household fur- 
niture in New Jersey, each taxable by local law in the 
States where situated. The Court of Appeals decided the 
assessment to be illegal, and held (Comstock, C. J.) that 
the property was actually situated in other States, in other 
sovereignties, protected by their laws and taxable there, 
and therefore it ought not to be subject to a second taxa- 
tion in New York. 

The court also, in rendering the decision, used the fol- 
lowing language : " There seems to be no place for the 
fiction" (that personal property follows the owner) "in 
a well-adjusted system of taxation. In such a system a 
fundamental requisite is that it be harmonious, but har- 
mony does not exist unless the taxing power is exerted 
with reference exclusively either to the situs of the prop- 
erty or to the residence of the owner. Both rules can not 
obtain, unless we impute inconsistency to the law and 
oppression to the taxing power. Whichever of these rules 



DISAPPEARANCE OP THE FICTION. 447 

we find to be the true one, whichever we find to be founded 
in justice and the reason of the thing, it necessarily ex- 
cludes the other; because we ought to suppose, indeed, we 
are bound to assume, that other States and governments 
have adopted the same rule. If, then, proceeding on the 
true principles of taxation, we subject to its burdens all 
goods and chattels actually within our jurisdiction with- 
out regard to the owner's domicile, it must be understood 
that the same rule prevail everywhere. If we proceed in 
the opposite rule, and impose the tax on account of the 
domicile, without regard to the actual situs, while the same 
property is taxed in another sovereignty by reason of its 
situs there, we necessarily subject the citizen to a double 
taxation, and for this no sound reason can be given." 

In further support of its position the court made use 
of the following illustration: "A citizen, a resident of 
Massachusetts, may own a farm in one of the counties of 
this State, and large wealth belonging to him may be in- 
vested in cattle, in sheep or horses, which graze the fields, 
or are visible to the eyes of the taxing power. Now, these 
goods and chattels have an actual situs as distinctly as 
the farm itself. Putting the inquiry, therefore, with refer- 
ence to both, ' Are they real estate, and personal ? ' so as 
to be subject to taxation under that definition. It seems 
that but one answer can be given to this question, and that 
answer must be according to the actual truth of the case. 
If we take the fiction instead of the truth, then the 
situs of these chattels is in Massachusetts, and they are not 
within this State. The statute means one thing or the 
other; it can not have double or inconsistent interpreta- 
tions; and as this is impossible, so we can not, under and 
according to the statute, tax the citizen of Massachusetts 
with respect to his chattels here, and at the same time 
tax the citizen of New York in respect to his chattels 
having an actual situs there. In both cases the property 
must be within the State, or there is no right to tax at all." 

Since this decision by its highest court, personal prop- 
erty, though owned in the State of New York, is not tax- 
able to its owner there, provided it is capable of and has a 
permanent situs away from the owner or his domicile. 

The United States Supreme Court (Hayes vs. Pacific 
Mail Company, 17 Howard, 713) decided that the situs 



448 THE THEORY AND PRACTICE OF TAXATION. 

of a vessel for State taxation is only at the port where it 
is registered, and not where it may happen to be. 

In the case of The City of New Albany vs. Meekin 
(3 Indiana Reports, 481), the defendant was a resident 
of New Albany, and was assessed for personal property in 
respect to a steamboat enrolled at Louisville, Kentucky, 
and which touched only occasionally at New Albany. It 
was held that the tax was illegal, the Supreme Court ob- 
serving that "the only question we have to consider is 
whether the boat or the defendant's share is within the 
city." _ 

It is also an interesting circumstance that this legal 
controversy concerning the situs of a ship for the purpose 
of taxation has almost its exact counterpart in the 
records of English law; case after case having formerly 
come up before the English courts in which the question 
involved was, Shall the ship or her owners be taxed at the 
place of the vessel's registry, or at the domicile of her 
proprietors? The ultimate decision was, that the only 
situs of a vessel for taxation is the port of her registry, and 
this decision was recognised in practice until Parliament 
and the people arrived at the conclusion that it was for 
the interest of the nation that ships should no longer be 
taxed directly in any manner. 

The United States Supreme Court, in the case of the 
Northern Central Railroad vs. Jackson (7 Wallace, 262), 
also affirmed the principle that two States can not tax at 
the same time the same property, nor can a State tax prop- 
erty and interest lying beyond her jurisdiction. The rail- 
road corporation in question, extending from Baltimore 
in Maryland to Sunbury in Pennsylvania, was the result 
of the consolidation of four railroad companies, one in- 
corporated by the State of Maryland and three by the State 
of Pennsylvania. The latter State imposed a tax of three 
mills per dollar of the principal of each bond issued by 
said road, which tax the company, at their office in Balti- 
more, deducted from the coupons of the bonds of said 
consolidated road held by Jackson, an alien, resident in 
Ireland. The court, by Mr. Justice Nelson, decided ad- 
versely to the tax, on the ground that the bonds were issued 
upon the credit of the line of the road, a portion of which 
was within the jurisdiction of the State of Maryland, and 



THE QUESTION OF SITUS. 449 

that the security, bound and pledged for the payment of 
the bonds and of the interest on them, embraces the Mary- 
land portion of the road equally with that portion situated 
in the State of Pennsylvania; respecting which condition 
of affairs the court used the following language : 

" It is apparent, if the State of Pennsylvania is at 
liberty to tax these bonds, that to the extent of this Mary- 
land portion of the road she is taxing property and interest 
beyond her jurisdiction. Again, if Pennsylvania can tax 
these bonds, upon the same principle Maryland can tax 
them. This is too apparent to require argument. The 
consequence, if permitted, would be double taxation of the 
bondholder, and its effect is readily seen. Thus a tax of 
three mills per dollar of the principal, at an interest of 
six per centum, payable semiannually, is ten per centum 
per annum of the interest ; a tax, therefore, by each State, 
at this rate, amounts to an annual reduction from the 
coupons of twenty per centum; and if this consolidation 
of the line of the road had extended into New York or 
Ohio, or into both, the deduction would have been thirty 
or forty. If Pennsylvania must tax bonds of this descrip- 
tion, she must confine it to bonds issued exclusively by her 
own corporations. Our conclusion is, that to permit the 
deduction of the tax from the coupons in question would 
be giving effect to the acts of the Pennsylvania Legislature 
upon property and interests lying beyond her jurisdiction" 

Again, the national (United States) bank act acknowl- 
edges, and the courts of the United States have so held, 
that a bank has a situs and its shares a situs where the 
bank is located, and not where the stockholders reside. 
The national bank act, therefore, discards the usual State 
principle of taxation, that personal property follows the 
owner. 

A debt incurred for stock in a corporation has recently 
(1897)" been held by the Appellate Supreme Court of New 
York as non-taxable, because the assets represented by the 
stocks are assessed and taxed. 

• But are credits, in any or all of the various forms in 
which they are exemplified, property? This question 
brings us face to face with another of those curious anom- 
alies of opinion and practice that characterize this whole 
subject of taxation. 



450 THE THEORY AND PRACTICE OF TAXATION. 

In most of the States of the Federal Union credits are 
generally regarded as property, and are made the subject 
of taxation at the residence or domicile of their owner, and 
are held to embrace all debts dne from solvent debtors, 
whether on account, contract, note, bond, or mortgage, 
and stocks in moneyed corporations, irrespective of the 
place where such securities may be at the time the assess- 
ment shall be made. In States, however, like New York, 
which reject the assumption that the situs of movable, 
visible, personal property for taxation follows the owner 
irrespective of its actual location, and accept the decision 
of its own courts, that the situs of such property for taxa- 
tion is where it is, and independent of the domicile of its 
owner, the opposite rule is held to apply to credits. 

On the other hand, in all other countries of high civili- 
zation, credits are not regarded as property in the sense of 
an actuality, and are not subjected to direct taxation. In 
France, which is at the present encumbered with a greater 
national debt than has ever before been borne by any 
nation, and where almost every expedient for raising reve- 
nue to defray its extraordinary national expenditures has 
been resorted to, no attempt or even a proposition has been 
made to tax credits. It is, therefore, of the first impor- 
tance that the American public, and especially that por- 
tion of it that enacts tax laws, shall have a clearer and 
more correct idea of the nature of property than it now 
possesses ; and that there shall be eliminated from all such 
laws the idea that extensively prevails in the United States, 
but in no other country, that " nothing " can be " some- 
thing," if a statute will only so provide. 

That there is some warrant and defence for such an 
idea is to be found in the fact that there is not a unity 
of opinion among economists on this subject; and that in 
common parlance and dictionary use the term " property " 
is made applicable to the qualities, rights, and titles of 
" things " equally with the things themselves. Thus, ac- 
cording to the ancient though still existing law of Scot- 
land, what is termed " real property " in England is termed 
" heritable rights " in Scotland, and what is termed " per- 
sonal property" in England is termed "movable rights" 
in Scotland. Ancient usage is, however, no warrant for 
the continued use of definitions not applicable to new 



DEFINITIONS OF PROPERTY. 451 

conditions, and the acceptance of which as authority for 
conduct is provocative of immorality, injustice, and un- 
sound fiscal policy. Prof. H. Dunning Macleod, a dis- 
tinguished English economist, who has many adherents, 
has vigorously advanced the idea that everything that can 
be bought and sold is property, and assigns to the old 
Greek philosopher Aristotle the honour of its original con- 
ception; but without mentioning that at the period at 
which Aristotle lived there was practically nothing bought 
or sold except things tangible and visible, and that credits 
were practically unknown. 

Attractive as this idea may be in theory, it needs but 
practical application to demonstrate its absurdity. Thus, 
when the Church sold " absolution " from sin, did the 
buyer, to quote from old WyclifTe, " have property in 
ghostly goods, in which no material or property may be 
regarded as inhering " ? Service, again, is bought and 
sold; but when its purchase, as in the case of the hire of 
incompetent or dishonest persons, results in the impair- 
ment or complete waste or destruction of property, is it 
entitled to be regarded as property? When a ticket to a 
theatre or concert is sold and bought, can the temporary 
right to a seat, or the brief sense of pleasure which the 
purchaser receives in return, and which he can not per- 
petuate without renewed buying, and can not transfer to 
another person, be entitled to be called property ? " When 
socialists and communists," says Professor Macleod, " wish 
to destroy property, it is not the material things they wish 
to destroy, but the exclusive right which private persons 
have in them." If this assertion is warranted, the question 
is pertinent, Why is it, when socialists or communists have 
the opportunity to destroy property, they rarely proceed 
against, property over which private persons have exclusive 
control — like private dwellings — but rather against monu- 
ments or buildings, and constructions which are acknowl- 
edged to be public as respects use and control? Again, 
Professor Macleod further holds that not only is the 
right to a thing, which is not at the time of sale in 
existence, but is to be acquired in the future, property; 
but also that a mere promise to deliver a commodity is 
property of the same general nature as money and an 
actuality. 



452 THE THEORY AND PRACTICE OF TAXATION. 

The Foreign-held Bond Case: a New Chapter of 
Progress. — Any review of this general subject of " double 
taxation" would be imperfect that failed to particularly 
call attention to a decision of the United States Supreme 
Court which, although of the first importance as touching 
the correct administration of a free and intelligent govern- 
ment, has thus far attracted little attention, even among 
members of the American bar. 

The subject in question, furthermore, illustrates the 
historical principle that changes in free governments have 
more often been effected through the decisions of their 
highest courts than by direct legislation. Thus it is known 
to all who have examined the theory and practice of local 
taxation in the United States, that a hundred years ago 
or less, the lawmakers of England entertained very gen- 
erally the same opinion in regard to this subject which is 
yet popularly accepted in this country, namely, that in 
order to secure exact justice and equality it is essential 
to attempt to subject all property of the taxpayer — real 
and personal, tangible and intangible, visible and invisible 
— to one uniform rate of valuation and assessment; al- 
though it must then, as now, have been evident to every 
one on reflection that, in order to attempt to do this, it 
would be necessary to endow the assessors with more than 
mortal powers of perception, so as to enable them to see 
what was invisible, and measure what was intangible and 
incorporeal (debts and credits, for example) ; and that, 
in default thereof, any practical application of this theory 
must result in rank absurdity and injustice. And yet it 
is curious to note that the change in English taxation, 
when it came about, was not due to any such process of 
reasoning on the part of the people, or to any positive 
sentiment on the part of the state, but rather to a series 
of legal decisions by its courts, which gradually under- 
mined the whole system of British local tax assessment, 
until it tumbled down, as it were, imperceptibly, and 
gradually became replaced, from necessity, by a theory 
which approximated more closely to the principles of sound 
political economy and the dictates of common sense. 

Thus, one of the first of the old-time maxims which 
gave way under these decisions was the fiction of law that 
all property for the purpose of taxation followed the per- 



FOREIGN-HELD BOND CASE. 453 

son or domicile of the owner (in virtue of which real estate 
was once taxed, under the British system, where the owner 
resided, in place of where the property was situated, used, 
and protected), and its replacement by the more rational 
principle that for all purposes of assessment the situs of 
property is where the property actually is ; while other de- 
cisions of a similar character, following one another by 
intervals of years, forbade the taxation, for local purposes, 
of all evidences of national indebtedness, or " consols " ; 
affirmed the situs of a vessel for taxation to be at the port 
of its registry, irrespective of the domicile of the owner; 
and declared that all negotiable instruments are chattels 
personal, and the like; until the British system of local 
taxation, like the French, Belgian, and German, has come 
to be based on the assessment of comparatively few objects, 
and the avoidance in assessment, to the greatest possible 
extent, of all personal inquisition and arbitrary treatment. 

A case in question determining definitely, as it would 
appear, the hitherto questionable situs for State taxation 
of all that large class of personal property comprised under 
the general term " negotiable instruments " — i. e., State, 
municipal, railroad, and other corporate bonds, circulating 
notes of banking institutions, promissory notes payable to 
bearer, etc. — is reported in the fifteenth volume of Wal- 
lace, under the title of State Tax on Foreign-held Bonds, 
and in brief may be thus stated : 

The State of Pennsylvania, by a law passed in 1868, 
required the officers of every company, except banks or 
savings institutions, incorporated and doing business in 
that State, to retain a tax of " five per cent " upon every 
dollar of interest paid by such company to its bondholders 
or other creditors, and to pay over the same to the State 
Treasurer for the use of the Commonwealth. The plaintiff 
in this specific case — the Cleveland, Painesville, and Ashta- 
bula Railroad Company — denied the legality of the tax, 
and, appealing to the State courts, alleged, among other 
things, the following in support of its position: 

" That the greater portion of the bonds of the company 
having been issued upon loans made and payable out of 
the State to non-residents of Pennsylvania, citizens of other 
States, and being held by them, the act in question, in au- 
thorizing the tax upon the interest stipulated in the bonds, 



454 THE THEORY AND PRACTICE OF TAXATION. 

so far as it applied to the bonds thus issued and held, im- 
paired the obligation of the contracts between the bond- 
holders and the company, and was therefore repugnant 
to the Constitution of the United States and void." 

The several State courts of Pennsylvania, however, 
affirmed the validity of the tax; but the case having then 
been carried on writ of error to the Supreme Court of the 
United States, the latter in December, 1873, reversed the 
judgment of the State courts, and decided in favour of 
the plaintiff ; the opinions of the court, as expressed by Mr. 
Justice Field, being substantially as follows: 

I. The power of taxation of a State is limited to per- 
sons, property, and business within her jurisdiction; all 
taxation must relate to one of these subjects. 

II. The tax laws of a State can have no extra-territorial 
operation; nor can any law of a State inconsistent with the 
terms of a contract made with and payable to parties out 
of the State have any effect upon the contract while it is 
in the hands of such parties or other non-residents of the 
State. 

III. Bonds issued by a railroad company are property 
in the hands of the holders, and when held by non-residents 
of the State in which the company was incorporated are 
property beyond the jurisdiction of the State. 

It will be observed under the third head (the language 
above quoted being the official prefatory syllabus of the 
decision) that the court lays down the rule that negotiable 
bonds are property, not in the place where issued, as was 
claimed by the authorities of Pennsylvania, and not at the 
domicile of the owner irrespective of actual presence, as 
was generally claimed by the State tax officials, but in the 
hands of the holders at the place where the bonds are 
actually situated, whether the holders be actual, bona fide 
owners or otherwise. And the following is the exact lan- 
guage in which the decision was expressed : 

" It is undoubtedly true that the actual situs of personal 
property which has a visible, tangible existence, and not 
the domicile of its owner, will in many cases determine 
the State in which it may be taxed. The same theory (i. e., 
the actual situs determinative) is true of public securities 
consisting of State bonds, and bonds of municipal bodies, 
and circulating notes of banking institutions; the former, 



LIMITATION OF TAX JURISDICTION. 455 

by general usage, have acquired the character of, and are 
treated as, property in the place where they are found, 
though removed from the domicile of the owner; and the 
latter are treated and pass as money wherever they are." 

If, now, there is any meaning in words, and if the 
authority of the United States Supreme Court in defining 
the powers and jurisdiction of the States is as absolute 
as is generally supposed, it is clearly evident that the 
first clause of the above-quoted opinion effectually estab- 
lishes the unconstitutionality and illegality of the theory 
and practice of Massachusetts and other States, namely, 
that in virtue of jurisdiction over the person and domicile 
a State has a right to tax so much of the visible, tangible, 
personal property of its citizens — i. e., horses, cattle, stocks 
of goods, money, bullion, and the like — as may be without 
its territory and jurisdiction: the law of Massachusetts, 
for example, defining personal property for the purpose 
of taxation to be " goods, chattels, money, and effects, 
wherever they are." * 

If it be objected that the court, by using the expression 
" in many cases," does not make its rale absolute and un- 
qualified, the answer is that the exceptions, when under- 
stood, will be found to be of a character which proves and 
strengthens the rule, rather than antagonizes it. Thus, 
as has been already noticed, the United States Supreme 
Court has decided that the situs for taxation of vessels 
which move about on the high seas or navigable inland 
waters must be at the home port where they are owned and 
registered; and it also stands to reason that the situs of 
such property as railroad cars, or other chattels which as a 
condition of using are perpetually in transitu, in order to 
avoid duplicate taxation and conflicting statutes, must be 
taxed, if taxed at all, under the head of the franchise of 
the company or owners. But in all cases where fixity or 
permanence are conditions of using, it may be unquestion- 

* In Massachusetts, within the last half century, a citizen has 
been threatened with arrest and imprisonment for objecting to 
pay taxes in that State on goods located in a store in San Fran- 
cisco and paying taxes thereon in the State of California. Bullion 
in the vaults of the Bank of England has also been taxed to citi- 
zens of Massachusetts as personal property within a comparatively 
recent period. . ' 



456 THE THEORY AND PRACTICE OF TAXATION. 

ably affirmed that the court intended to make no exception 
in its rule for determining where visible, tangible, personal 
property may be taxed, and where, also, it is of necessity 
exempted from taxation. 

It ought to be superfluous, but in view of existing opin- 
ions and practices it is nevertheless expedient to say that 
the reason of this rule is founded upon a circumstance alike 
conformable to law and common sense, which is that taxa- 
tion and protection are correlative terms; or, in other 
words, according to the political theory of our govern- 
ments, national and State, and, in fact, of every govern- 
ment claiming to be free, that taxes are the compensation 
which property pays to the State for protection; or, as 
Montesquieu, in his Spirit of Laws, has it, and as the 
United States courts have again and again expressed it, 
that " the public revenues are a portion that each subject 
gives of his property in order to secure and enjoy the re- 
mainder." When, therefore, a State like Massachusetts 
assesses property situated beyond its territory and juris- 
diction, and which its laws are not competent or able to 
either reach or to protect, or assesses one of its own citi- 
zens in respect to such property, the act has no claim to be 
regarded as taxation, but is simply arbitrary taking, or 
confiscation, and a procedure which the United States Su- 
preme Court has, at least in the case under consideration, 
declared to be unconstitutional, and therefore illegal and 
unwarranted. 

The court having thus affirmed the situs for the taxa- 
tion of personal property which has a visible and tangible 
existence, has now taken a further step forward, and in 
the second clause of the opinion above quoted asserts that 
"the same thing is true of public securities consisting of 
State bonds, and bonds of municipal bodies, and circulating 
notes of banking institutions"; namely, that their situs for 
assessment and taxation is wholly irrespective and apart 
from any whereabouts of the owner or his domicile, but is 
where the securities actually are. So much, then, is so clear 
that even the most obstinate of assessors under the present 
arbitrary system will find it difficult, in respect to the items 
specified, to interpret the law and rule of action otherwise. 
But it is to be observed that negotiable railroad bonds are 
not, in the opinion quoted, specifically mentioned. 



BANK NOTES AND SECURITIES. 457 

That they, however, follow the same law as municipal 
and State bonds, and were intended by the court to be in- 
cluded in the same category, is, however, obvious, for the 
following reasons : 

1. The subject-matter of the case and of the decision 
was a railroad bond. 

2. The character of a railroad bond as a negotiable in- 
strument is in all respects the same as a State or municipal 
bond. 

3. The reason which undoubtedly led the court (as it 
must every unprejudiced reader who thinks upon the sub- 
ject) to the conclusion that State, municipal, and railroad 
bonds and bank notes follow the same rule, in respect to 
their situs for taxation, as other personal property of 
acknowledged visible and tangible character is that the 
property of all such instruments runs with the instru- 
ment, wholly irrespective of the residence of the owner, 
and consequently, in respect to title, passes by delivery. 
By public securities, also, the court undoubtedly meant 
all negotiable securities which are payable to the public — 
that is, to bearer wherever he may be; or, in other words, 
a public security, from its very nature, is subject to no 
previous equities between the original parties creating or 
issuing it, and the sum agreed to be paid is a liquidated 
and adjusted sum which must be paid to the public — that 
is, the holder ; and the situs of such property from necessity 
follows the instrument to the public, and can be nowhere 
else than where the instrument actually is. On the other 
hand, if the instrument was subject to equities, the prop- 
erty might be where the parties creating it or owning it 
resided. And if this position is not correct, dealings in all 
such securities, or upon the stock exchange, or in open 
market would be impracticable ; inasmuch as the purchaser 
would be obliged to institute an investigation as to whether 
the title for each specific bond vested in the vendor or 
some other person; and as there is no registration of the 
transfer of such property, as there is in the case of real 
estate, the investigation must be practically impossible. 
So, also, in the case of circulating notes of banking insti- 
tutions : if their title did not pass by delivery, or, in other 
words, if their situs as property was not under all cir- 
cumstances accepted as in the hand of the holder, their 

30 



458 THE THEORY AND PRACTICE OF TAXATION. 

use as money would be impossible; and the courts, recog- 
nising this principle most fully, have always held that in 
cases where negotiable instruments or money have been 
stolen, and in consideration for value received have come 
into the hands of innocent third parties, the title to such 
property in the hands of the holders is perfect and irrev- 
ocable. 

Again, the circumstance that State, municipal, and rail- 
road bonds, and all other strictly negotiable instruments, 
even warehouse receipts payable to bearer, are subject to 
attachment by legal process only at the place where they 
actually are, and without regard to the whereabouts of 
the owner or his domicile, of itself also clearly defines and 
limits the situs of such property for taxation; for clearly 
a State which has the power to make a legal attachment 
operative against a given property has also the power 
to tax such property; while, on the other hand, a State 
which through lack of possession and jurisdiction, can not 
attach a specific property, certainly can not enforce its tax 
laws against it, or give protection in case its rights or the 
rights of its owners are violated. And, again, can the right 
to tax personal property exist in a State from which the 
property is so confessedly absent that there is neither right, 
power, nor possibility of passing title to it within the terri- 
tory of the State by delivery ? 

That the view thus taken respecting the situs of nego- 
tiable instruments, and especially of railroad mortgage 
bonds, for taxation, is in strict conformity with the opin- 
ion of the Supreme Court, is also evident from the fact 
that in summing up the court held that not only was a 
mortgage bond issued by a railroad chartered by Pennsyl- 
vania, and in the hands of a non-resident, property out of 
the State, and as such beyond the jurisdiction of the tax- 
ing power of the State, but also that the State could not 
tax such property even when owned by a citizen and resi- 
dent, unless the bond was at the time of assessment actually 
within the territory of the State. And as this point is a 
most important one, it is desirable to ask attention to the 
exact language of the court establishing it. 

" We are clear," says Justice Field, " that the tax can 
not be sustained; that the bonds, being held by non-resi- 
dents of the State, are only property in their hands, and 



EFFECT OF THE DECISION. 459 

that they are thus beyond the jurisdiction of the taxing 
power of the State. Even where the bonds are held by resi- 
dents of the State, the retention by the company of a por- 
tion of the stipulated interest can only be sustained as a 
mode of collecting a tax upon that species of property in 
the State. When the property is out of the State, there can 
be no tax upon it for which interest can be retained. The 
tax laws of Pennsylvania can have no extra-territorial 
operation/ 7 

The decision of the United States Supreme Court, of 
which an analysis has been above given, ought therefore to 
be regarded as constituting a real chapter of progress in 
American local taxation; because, by contributing power- 
fully to break down the present popular system, which, 
founded on an erroneous and impracticable principle, never 
has been and never can be executed with justice and effi- 
ciency, the time is thereby hastened when a better system 
shall be accepted and inaugurated. The logic of this de- 
cision, moroever, will not only pervade courts — State and 
Federal — but will be felt in legislative halls, and be im- 
pressed upon the conscience of the people. The court itself, 
in referring to the tax under consideration, says with great 
point and truth: "It is only one of many cases where, 
under the name of taxation, an oppressive exaction is made, 
without constitutional warrant, amounting to little less 
than an arbitrary seizure of private property. It is, in 
fact, a forced contribution levied upon property held in 
other States, where it is subjected, or may be subjected, 
to taxation upon an estimate of its full value." 

But this new decision teaches us that all personal prop- 
erty, if taxed at all, must be taxed in the city or town where 
found, and not elsewhere. The injustice and oppression 
are also the same as in the case of State exterritorial taxa- 
tion when the tax is levied upon a person for property not 
within the district where the property is actually located 
and protected. It is only a degree of oppression, and this 
authoritative opinion of the United States Supreme Court 
can not fail to give a new impulse to the feeling that taxa- 
tion without protection is merely legalized brigandage.* 

* See an essay on Double Taxation in the United States, by 
Francis Walker, published in the Studies in History, Economics, 
and Public Law, Columbia College, New York. 



CHAPTEE XXI. 

WHAT IS PROPERTY? 

One of the greatest obstacles in the way of framing a 
correct system of general taxation is the different and 
wholly antagonistic opinions that popularly prevail as to 
the real nature of what constitutes its chief objective in 
respect to administrative action, namely, " property." 
This point finds full confirmation and illustration by refer- 
ence to the several definitions that have been given to this 
term by various recognised authorities, and have been ac- 
cepted to a greater or less extent as authoritative by a gen- 
eral and even educated public. Thus, as before noted, a 
widely accepted definition of Professors Macleod, Perry, 
and others is, that everything that can be bought or sold 
is property. Thus, even the random ideas of an anarchist 
are a form of wealth at present, just as the " godks " of 
Artemus Ward used to be — because they have exchangeable 
value, and will bring a certain number of dollars to him, 
or to the reporter or interviewer who gives his notions to 
the public. So the beauty of an actress, the nimble legs of 
a dancer, the vocal sweetness of an opera singer, are also 
forms of wealth, since they have an exchangeable value 
when utilized. And hence the folly of the socialists, who 
suppose that by dividing property, or equalizing the dis- 
tribution of land, they can secure equality of wealth, since 
diversities of human faculty and opportunities would in- 
stantly begin to make this imperfect distribution more un- 
equal than before. Thus the Greek philosopher Aristotle, 
speaking of the division of land among all the citizens 
of his time, has the credit of shrewdly saying, " Either all 
kinds of property must be equalized, or all must be let 
alone." According to Webster's Dictionary, that " to which 
one has a legal title " is property. And in a report of a 
460 



NATURE OF PROPERTY. 461 

recent lecture, a leading American theologian is credited 
with saying to an assemblage of divinity students that 
" he adopted as the basis of his discussion of property the 
' profound and perfect 7 definition of the Eoman Catholic 
theologian Brownson, namely, that ' property is communion 
with God through the material/ And to realize and apply 
this definition is the great duty of the Christian teacher." * 

A more rational conception of the exact nature of prop- 
erty, or rather of what property consists, would, however, 
seem to lead to this conclusion, namely, that property, at 
least for the purpose of taxation, is always a physical actu- 
ality, with inhering rights or titles, the product solely of 
labour, and is always measured in respect to value and for 
exchange by labour. 

Thus, for example, a fish free in the ocean is not prop- 
erty; but when it has been caught through the instrumen- 
tality of labour it becomes property. Property, further- 
more, can not be created except by an application of labour 
of some kind to material substances, which because they are 
substances and in order to be substances must have both a 
corpus, or an entity, and a situs, or a situation. Human 
labour incorporated in things, and thus saved to those who 
acquire the things, is also what constitutes value or capital ; 
and nothing can be capital but the existing results of previ- 
ous labour, which can contribute to man's enjoyment and 
well-being. 

It is interesting also to note in this connection how the 
etymology of the Latin words possessus and possideo, name- 
ly, po and sideo, to sit by or on, and from which in turn 
we have the English word possession — the common defini- 
tion of property being something possessed — curiously har- 
monizes with and confirms the conclusion that property 
must be always a physical actuality. For it is clear that it 
is only a material something, a visible and tangible entity, 
that one can sit down on, and not an invisible, intangible 
nothing, the fiction of law or of the imagination. 

A limitation, little recognised by legal writers and au- 
thorities, on the exercise of the right of eminent domain 
(the name given to the power inherent in state sovereignty 

* " The term property denotes a right over a determinative thing. 
Property is the right of any person to possess, use, enjoy, and dis- 
pose of a thing." — Eaton vs. Boston, 51 N. H., 504. 



462 THE THEORY AND PRACTICE OF TAXATION. 

of making a compulsory purchase of private property for 
public use), also sustains the correctness of the definition 
of property as above given; inasmuch as this right is never 
conceded or made applicable to other than an actuality, 
and never to a mere representative of something that is 
not material. Thus one of the illustrations of Soman juris- 
prudence handed down by Tacitus was to the effect that 
an emperor was not allowed to appropriate the right to 
carry a stream of water through the lands of a private 
individual, but did pay damages for the injuries thereby 
accruing to the lands. 

All investigation on this subject can therefore, it is be- 
lieved, lead to but one conclusion, and that is that prop- 
erty is always " embodied or accumulated labour" And 
as political economy does not and jurisprudence ought not 
to take cognisance of chateaux en Espagne, these are the 
only senses in which political economy and the law can 
legitimately reason about property.* 

* The statement is frequently made that all value is the product 
of labour. Adam Smith says, " Labour is the fund which originally 
supplies a nation with its wealth." McCulloch says, " Labour is 
the only source of wealth " ; and all the early writers, in one form 
or another, say the same thing. Accepting under such circum- 
stances an entire misconception of the true meaning of the word 
labour, the popular mind has been drawn to the conclusion that 
hand labour or muscular exertion is the producer of all value; 
and has added the corollary that hand labour is therefore entitled 
to the entire value thus produced. But when closely examined, 
the true meaning of the word labour will be found to be, all that 
a man can do, either with his muscle or Ms brain. On this crude 
misconception of the meaning of words, philanthropic systems have 
grown up, under which the weaker ones have lost heart, and the 
stronger ones have grown desperate, because the hard sense of 
humanity does not accept their theories. Also, through their influ- 
ence, these ideas have reacted and are reacting on the labourers 
themselves, with rather lamentable results. Thus it is a very 
general complaint of the present time that the ordinary workman, 
the person commonly understood by the word " labourer," puts 
so little mind into his or her work that it is perfunctory to the 
last degree; concerns itself very little with results, but expends its 
efforts in a function whose sole end is to escape blame or actual 
discharge, and to get along with the least possible exertion; when 
the fact is, that the three functions of capital (which is accumu- 
lated labour), labour (in the muscular sense), and management (or 
brain power) must as a rule act conjointly, in order to insure the 
best results. " In more recent times, a truer appreciation of this 
word has arisen, but even yet has not been so absorbed into the 



LABOUR AND PROPERTY. 463 

Examples of property which is apparently not the result 
of accumulated or of any labour, and so militating against 
these conclusions, will doubtless suggest themselves: such, 
for instance, as a diamond found upon the seashore, land 
squatted upon and obtained by pre-emption, bank stock, 
patent rights, copyrights, annuities obtained by gift or pur- 
chase, franchises, monopolies, and debts; but an examina- 
tion will soon prove that the objections embodied in them 
are more specious than real. Thus, in the case of the dia- 
mond accidentally picked up, which is perhaps one of the 
most striking of all the examples that can be adduced in 
favour of the position that property can come into exist- 
ence without the agency of labour, it may be said: first, 
that an exceptional fact like this can not constitute an ade- 
quate basis for the enunciation of a principle; and, next, 
that the value of this accidental diamond is solely deter- 
mined by and represents the value of the labour which has 
been required to obtain all other existing diamonds. The 
moment the fact ceases to be exceptional, the moment dia- 
monds can be had in abundance by merely picking them 
up, that moment their value will simply represent the cost 
of the physical effort requisite to pick them up. Again, 
if land squatted upon has any value as property whatever 
in the first instance, it is because it is the embodiment of 
the labour required to discover it, to conquer it, to defend 
and protect it; to effect all of which, taxes, which are the 
results of labour, may have been paid for centuries. If it 
acquires any additional value beyond this, after it has been 
squatted upon, it will be simply because the results of labour 
have become connected with it, or the value of other land 
or other property the products of labour, for the use of 
which labour competes, are reflected upon it. In 1620 the 
land upon which the city of Boston stands could have been 
bought for a string of sea shells; in 1894 its value for as- 
sessment as property for taxation was probably in excess 

general fund of knowledge as to bear practical fruits; and it needs 
to be constantly dwelt upon, set forth, reiterated, and explained, 
until it shall become a common possession of those who think." 
The reason why more attention has not been given to this subject 
by the earlier economists has been assigned to the fact that they 
drew their illustrations from a very primitive life, where the bow 
and spear figured prominently. — Address, American Social Science 
A ssociation, 1893, by F. J. Kingsbury, LL. D. 



4:64 THE THEORY AND PRACTICE OF TAXATION. 

of $900,000,000. But in both instances the valuation was 
determined by one and the same standard: in the first, 
by the amount of labour required to collect and string 
the shells; and in the second, by the amount of labour 
and capital — which is the result of labour — which has 
been embodied in the land or become connected with it. 
Take away the labour and its accumulated results, and 
the site of Boston will be worth no more at the present 
time than it was in 1628, when William Blackstone first 
obtained it. 

Analyze next the alleged property in bank notes. The 
coin in the vaults of the banks, the vaults, the building, 
the books, the furniture, and other physical actualities — 
the results of labour — employed in transacting the business 
of banking, are the real property of the bank. The bank 
stock, so long as the bank exists, is merely a right to receive 
dividends. The creation of a bank obviously does not create 
any property. The notes discounted by the bank over its 
counter are inchoate titles to the debtor's property or to 
his rights to property; and the notes issued by the bank 
are inchoate titles to the bank's property or to its equitable 
rights to property. The bank, apart from its physical 
actualities and machinery, is simply a ledger recording 
credits and debits. But credits and debits are only con- 
venient forms of bookkeeping, or the records of transfers 
of property and of rights, titles, and interests in property 
pre-existing. Credits and debits, moreover, stand to each 
other in the relation of an equation. There can be no credit 
without a debit, and no debit without a credit; strike out 
one side of the equation, and the other disappears of neces- 
sity. If there were no creditors there could be no debtors, 
and, vice versa, the moment debtors cease to be debtors, 
that same moment creditors cease to be creditors.* 

Copyrights and patents are simply legislative enact- 
ments to protect pre-existing property. A manuscript, a 
painting, or an invention is the joint product of physical 
and intellectual labour, which the copyright or patent right 
protects, the same as other forms of law protect other visible 
and tangible property from robbery and spoliation. The 

* The Supreme Court of Alabama has recently decided that 
when a bank in that State owns real estate the same is not liable 
to taxation as a part of its capital stock. 



COPYRIGHTS AS PROPERTY. 465 

relation which these instrumentalities sustain to property 
is clearly indicated by asking the question, whether there 
can be such a thing as a patent granted for what has never 
been reduced to a physical actuality; or a copyright given 
for the flight of fancy of a poet not embodied in the 
materiality of a manuscript or in the pages of a printed 
book. John Milton sold Paradise Lost to Samuel Sim- 
mons, bookseller, for five pounds ready money; but Gray's 
" mute, inglorious Miltons," who only imagined and never 
wrote, could never have obtained a copyright or any money 
offer whatever — no, not even reputation — for their imagin- 
ings, though for all that the world knows they might have 
been infinitely superior to the Milton who became glorious 
because he was not mute, in all that relates to mental at- 
tainment. 

" A person can read from a book, can quote from it, use 
its ideas in speaking and writing, and even attempt to pass 
them off as his own, and he will find no legal obstacle to 
such action. But the moment he tries to duplicate the 
material form in which the ideas appeared, that moment 
he passes from the realm of the intangible to that of the 
tangible " ; for the book, which is the concrete thing in 
which the author has embodied his ideas, is an entity, and 
because an entity representing embodied labour is prop- 
erty which the law will protect to the owner, and can also 
legitimately tax, if it will. There have been repeated de- 
cisions by the courts * that there can be no property in 
ideas — until, for example, an author through a copyright, 
or an inventor through a patent, has put his ideas in such 

* Some years since an action was brought in a United States 
court by one Kortenhaus against the American Watch Company, 
of Waltham, Mass., to recover royalties on an improvement in 
stem-winding watches that he made, and which, he averred, the 
defendants had put to use without his consent and without award- 
ing him any compensation therefor. The plaintiff swore that he 
had submitted his invention to the company's inspection with the 
view of selling it, but it refused to purchase, and he discovered 
afterward that the company had adopted the improvement, and 
that he had made the mistake of not patenting it. The court dis- 
missed the action, and ruled that there was no right of property in 
an idea as an idea, and that it could only be made property by 
letters patent. Had, however, a patent been secured upon the im- 
provement, its value as property would have been undoubtedly 
very considerable. 



4:66 THE THEORY AND PRACTICE OP TAXATION. 

tangible form that the Government can put its stamp upon 
them. 

It is also exceedingly curious to note how Shakespeare, 
whose range and accuracy of knowledge were so wonderful, 
clearly perceived, and as clearly expressed, the whole essence 
of modern political economy and jurisprudence in respect 
to this . immediate problem, when, in the following lines 
from A Midsummer-Night's Dream, he says : 

" The poet's eye, in a fine frenzy rolling, 
Doth glance from heaven to earth, from earth to heaven, 
And, as imagination bodies forth 
The forms of things unknown, the poet's pen 
Turns them to shapes, and gives to airy nothing 
A local habitation and a name." 

In other words, according to Shakespeare, as well as accord- 
ing to political economy and common sense, however bril- 
liant may be the imagination of the poet or inventor, he 
has no property in his ideas or imaginings until he has 
reduced them through labour to an actuality. And then 
the value of the actuality produced for the purpose of 
exchange or sale, provided there is a copyright or a patent 
to prevent use without compensation, will be just in pro- 
portion to the effectiveness or desirability of the labour 
exerted upon or embodied in it. The standard for measur- 
ing the value of the work of a Shakespeare, a James Watt, 
and a street sweeper is one and the same. 

Again, an annuity, like bank stock, is a right to re- 
ceive property, the result of previously accumulated labour, 
and its transfer by sale or bequest is simply a transfer of 
an equitable right; and a right of this character, in turn, 
is not property, but a title to pre-existing property. So, 
also, in respect to franchises, which, although often spoken 
of and regarded as property, are clearly nothing but rights. 
Thus, for example, a franchise of a railroad is simply a 
right to operate a road in a particular manner ; and a legis- 
lature can not and does not create a railroad by creating 
or granting a franchise. At the same time, the value of a 
physical actuality may undoubtedly be increased by a fran- 
chise which gives a right to use such actuality in a particu- 
lar way. A monopoly, also, like a franchise, is valuable, 
but its value consists in the fact that it gives to certain 
persons privileges that are taken from others, and the 



TITLES TO PROPERTY. 467 

making of a monopoly no more creates property than does 
the making of a franchise. 

Some persons, whose opinions are worthy of respect, 
have raised a point in discussing this question, that there 
is a distinction to be recognised between property and capi- 
tal; and that both in law and political economy the latter 
does not necessarily conform to the definition that has been 
here given to the former. But can there be such a thing 
as capital which does not represent a physical actuality 
in the sense of embodied labour? Capital is the interest 
of a person in embodied labour over and above his debts, 
or his interest in legal or equitable rights to embodied 
labour, and can have no value, and is merely imaginary, 
except it has the right, title, or power to command em- 
bodied labour, or to exercise dominion over property the 
result of labour. All that we labour and toil for is em- 
bodied labour. We will not give our labour for the " base- 
less fabric of a vision," or our accumulated labour for the 
dreamy creations of a Berkeley or the imaginary castles 
of poets, except so far as they make them manifest in 
material forms or writings. 

By some, also, the forces of Nature are regarded as 
property; but they are not so until dominated over and 
subjugated by man; and then only do they acquire value 
and become negotiable and subject to proprietorship. 
Gravity and electricity, as free forces, are incapable of sale 
and taxation; nor can they, in any rational view, be con- 
sidered as property. According to recent decisions of the 
courts of the United States, electricity is not a manu- 
factured product, and electric-light plants do not manu- 
facture it, but only distribute it. 

What aee Titles to Property? — But while political 
economy recognises nothing as property except physical 
actualities, the law, for the sake of convenience, has so long 
treated titles as conveying the same ideas as property, that 
the profession and the public have very generally come to 
regard the two as equivalent or identical. Consideration 
is, therefore, next asked to this point. 

Property being embodied and accumulated labour, it 
becomes endowed, in all places where the rights of labour 
are recognised, with the attributes and incidents of titles or 
evidence of just ownership or possession — inchoate, legal, 



468 THE THEORY AND PRACTICE OF TAXATION. 

or equitable — which inhere in the property, follow it, and 
form a component part of it wherever found. The fact 
that the ownership, interest, or title of a non-resident, as, 
for example, a bond and mortgage title to his debtor's 
property in another state or country, can be extinguished 
in the real and personal property of the debtor, by attach- 
ment or other process of law in the state where the debtor 
resides, and where his visible, tangible property has a situs, 
also leads up to and establishes as a principle of law that 
titles or incumbrances are connected with the owner, but 
inhere in the property, where the property is actually situ- 
ated, as incidents, form a part and are inseparable from it, 
and include the equitable title or right of the creditor in the 
debtor's unsold and unincumbered property, but are not 
themselves property. Some economists befog themselves on 
this subject, as before shown, by first defining property as 
anything that can be bought and sold, and then, since a 
title — as, for example, a deed — can be bought and sold, 
accept the inference that a title is necessarily property. 
But let us analyze this definition and assumption. The 
creditor can, without doubt, sell and deliver a deed to a 
farm, but what is sold in such instances is the farm, in- 
cluding a right — namely, a right to have dominion over 
it. But it may be rejoined that a right of dominion is 
property. Let us, therefore, carry the analysis a little 
further. If a farm in California is property in the State 
where it is and where it is taxed, any right or title to the 
same farm, held in New York or England, be it in the 
nature of a deed, a mortgage, a partnership interest, or 
any other form of title, can not be the property; for the 
same thing certainly can not be property in two separate 
States and jurisdictions, and in two distinct forms and 
manifestations, at the same time. On the other hand, if it 
be assumed that the title to the farm is the property, and, 
as such, can be rightfully taxed where it (the title) is, then 
it stands to reason that the subject of the title, the farm 
in California, ought not to be also regarded as property 
and taxed in New York or England. In other words, if 
the title to the farm is property, then the farm is not really 
in California at all (unless the owner of the title resides 
there), but goes out of that State in the pocket of the in- 
dividual who walks off with the title to it. We have all 



DEEDS AS PROPERTY. 469 

heard of such concentration of meat that all that is valu- 
able in an ox for food can be put into a quart can; but 
such a concentration of property as is here supposed is 
something much more remarkable; and admits of a man 
having a drove of oxen in his hand, ten acres of woodland 
in his hat, a church with a steeple in one coat pocket, and 
a four-story brick block and a mill privilege in the other.* 
It is also important to note that while a deed to realty, 
properly executed and recorded, is regarded as the highest 
form of title, we have the decision of the United States 
Supreme Court (Fletcher vs. Peck, 6 Cranch, 87) that a 
deed is but an "executed contract" on the part of the 

* As the promulgation of ideas that are not in harmony with 
long-accepted lines of thought generally provokes controversy and 
expressions of dissent, which in turn often result in promoting self- 
education, the author, with a view of furthering such a result, 
would here ask attention to two letters, voluntarily written, when 
his views respecting the relations of titles to property were origi- 
nally advanced by him (some years since) as a contribution to 
economic science; the first written by an eminent professor in one 
of the leading colleges of New England; and the second by an 
eminent merchant of New York, whose knowledge of economics 
was mainly the result of a long experience in practical business 
and financial transactions of great magnitude. 

No. 1. "My Dear Mr. Wells: 

"You are misled by the term titles, and are not only wrong, 
but, what is worse, are wrong in a superficial way. 

" The real question relates to the nature of credit. 

"I buy a piece of land for five hundred dollars and give my 
simple note for value received. The title to my land is my deed. 
My note has thereafter no connection whatsoever with the land, 
but it has value nevertheless. The bank buys it as a piece of 
property and holds it till maturity for the sake of the difference 
between its face and its price — i. e., for the discount. Your philos- 
ophy does not account for this proceeding; mine does. 

" Your assertion is that things of value must have a ' physical 
quality.' I deny that utterly; nothing has value by means of a 
mere physical quality. Does not my annual service to the college 
have a value? I get, at any rate, twenty-five hundred dollars a 
year for it. I render no ' physical quality ' whatsoever. 

" My note is worth nearly or quite five hundred dollars, but 
it is not a title to anything; it is a claim on me. So are all 
credits — claims merely, not titles at all. 

" You say if such things are value we might multiply values 
indefinitely. No; because we can not sell them indefinitely. So far 
as we can sell we make values. Even land and merchandise won't 
sell notes, with all their physical quality. Physical quality has 



470 THE THEORY AND PRACTICE OF TAXATION. 

grantor, not to resume the right in the thing granted ; and 
if, therefore, a State can tax extra-territorial contracts, it 
may tax her citizens on deeds of land in other States. 

This analysis of the meaning of property, from both 
an economic and legal point of view, might be prosecuted 
with interest and profit to a much greater extent ; but from 
what has been presented it would seem clear that nothing 
can not be something; or, in other words, that property is 
always a physical actuality, which has become valuable or 
property by some form of labour, and can not be created by 
mere paper documents, except to the extent of the value of 
the paper and the writing or printing upon it. Or, in other 
words, a title to property, a representative of property, can 
no more be property than a shadow can be a substance : and 
if this conclusion be true, then it would seem to follow, 
of necessity, that the act of making debts, bonds, verbal 
or written contracts, notes, book accounts, mortgages, ware- 
house receipts, titles, certificates of stock, or any form of 
salable or transferable rights, is not a creation or produc- 
tion of any new property, but simply an exchange, by con- 
tract or operation of law, of the rights and titles of parties 
in pre-existing property; and that any tax on any of these 
rights or titles is only another form of burdening the prop- 
nothing to do with it. The only possible test of property is sale. 
The reason why credits are more limited in their use than com- 
modities and services is simply that they relate to future time, 
which is less certain than past and present time. 

" Yours truly, ." 

With a desire to obtain an opinion on this interesting economic 
question from the merchant, the foregoing note was referred to 
his consideration by permission, and elicited from him the follow- 
ing rejoinder: 

No. 2. " Professor seems to ignore the fact that debtors 

hold all their property which is not mortgaged or encumbered, as 
trustees to pay their creditors generally, and it is this same prin- 
ciple which gives value to unsecured credits. 

" But the professor says, ' So far as we can sell we make values.' 
Does he mean that a counterfeit which is so good that it can be 
sold is a creation of value? Would a credit sell at all if it was 
not an inchoate right to the unsold and unencumbered property 
of the debtor? Of what value is a claim on a man if the claimant 
has no rights on the debtor's property? Such a claim would be 
no better than a claim on the northeast wind." 



TITLES INSEPARABLE FROM THINGS. 471 

erty which is the subject of the rights or titles. But some, 
in answer to the assertion that rights, debts, and titles 
are not property, for if they were we might make property 
by making rights and titles, might reply, " But we do make 
property in that way every day." But we can not do this 
indefinitely because we can not sell the title indefinitely; 
and why not? Let us, therefore, stop and think about it, 
and ask ourselves why we can not sell titles and credits 
indefinitely. We can sell property in the sense of em- 
bodied labour indefinitely. Why not titles and credits? 
The answer is simply that when we buy a title or credit 
we pay for and in a legal and economic effect buy the 
physical actuality, or right of dominion over it, which the 
credit or title represents, and nothing more. The moment 
one undertakes to sell titles or credits in excess of or sepa- 
rate from the embodied labour they are supposed to repre- 
sent, we call the act swindling. Fancy a member of the 
legal profession appearing in court to defend such a per- 
son for selling a title, separate from an actuality, on the 
ground that such a title was property because he was able 
to sell it, and that somebody not keen was persuaded to 
buy it ! Would the plea caveat emptor avail in such a 
transaction ? 

In other words, when the title does not inhere in the 
physical actuality, we give it a bad name, and the most 
imaginative do not call it property. A title which is really 
a title is never suspended or in abeyance. If a thing is 
embodied labour, some one, or a number of persons, has 
some form of title or dominion over it, and the title is 
inseparably allied to the thing; and therefore the sale of 
the title is the sale of the thing, because they are one and 
inseparable. Embodied labour, therefore, embodies all 
forms of title to the embodied labour. Credits and titles 
of themselves have no value, and separated from the things 
they represent, they can not honestly be sold at all. Who 
will buy them? We know the character of the men who 
will sell them, and their representatives will always be 
found in penal institutions. 

If some other name be given to embodied labour than 
property, it will not diminish its power to satisfy human 
wants ; and if, on the other hand, we call credits and titles 
property, they can not be eaten, or made of themselves in 



472 THE THEORY AND PRACTICE OF TAXATION. 

any form to satisfy wants, but they can represent things 
which will satisfy wants. It is interesting also to note 
that when attempts have been made to claim salvage for 
the recovery of bills of exchange, or other titles of prop- 
erty, from wrecks, the courts have decided that salvage 
in such cases is not allowable; and, therefore, have prac- 
tically held that credits and titles are not property, but 
mere rights to property, and in the case of negotiable in- 
struments, when destroyed by fire or otherwise, the right 
under the destroyed instrument still remains, and can be 
enforced in courts when identified. 

Actualities, not Fictions, the Legitimate Sub- 
ject of Taxation. — Enact such laws, also, in respect to 
taxing titles as we may, experience will prove that taxes 
can not be practically levied on imaginary things, or legal 
fictions, because it is some physical actuality, in the sense 
of embodied labour, that must, after all, and in the end, 
pay all taxes. Also, " taxes are generally demanded in 
money, and any tax law will be understood to require money 
when a different intent is not expressed" (Judge T. M. 
Cooley). If Legislatures have the power of creating fiat 
property — that is, imaginary or fictitious property — it is 
beyond their power to make it pay taxes, for nothing less 
than omnipotence can make something out of nothing. 

On the other hand, let us consider for a moment the 
converse of this proposition — namely, that titles are prop- 
erty, and, as such, ought not to be exempt from taxation. 
If this is so, then it would seem to follow that, by making 
titles, we can make property; and that when a man mort- 
gages his farm for ten thousand dollars, the community 
have ten thousand dollars' worth of real estate and ten 
thousand dollars' worth of personal property, where, before 
the execution of the mortgage, there was only the specified 
value of the real estate. On the other hand, when the mort- 
gage is paid off, ten thousand dollars' worth of personal 
property is destroyed, and by a parity of reasoning the 
State must be to that extent the poorer. A clear compre- 
hension, then, of the facts, that property is embodied 
labour; that property can alone suffice to pay taxes; that 
rights, titles, and credits are but the representatives of 
property; and that, having subjected the property to taxa- 
tion, there is no sense or equity in again assessing its 



ACTUALITIES AND TAXATION. 473 

representative, will at once divest the problem of taxation 
from many embarrassments which now seem to invest it, 
greatly simplify it, and go far toward the determination of 
sound and fixed tax principles. 

Important decisions touching the question here under 
consideration that have recently been rendered by courts of 
high repute are also here worthy of notice. Thus, in Cali- 
fornia, the Supreme Court of the State has had before it 
the vexed question of taxation of mortgages, and the 
judges have decided, in accordance with justice and com- 
mon sense, that, as mortgages do not in any way increase 
the body of wealth in a community, any tax laid upon them 
is laid upon a fictitious value; is in so far an imposition 
upon the taxpayer, and, inasmuch as it represents a second 
tax on real estate already taxed in the hands of the owner, 
is " double " taxation within the meaning of that term in 
the Constitution of California and other States. 

In 1875 the following case came before the Supreme 
Court of New York (General Term) under the following 
circumstances : The administrators of a citizen being taxed 
by the proper tax authorities of the State for a large 
amount of personal property, put in a schedule of personal 
assets consisting mainly of certificates of stock in various 
railroad and mining companies, with a plea for abatement. 
The court, after consideration, through Noah Davis, P. J., 
rendered the following decision : " We are of the opinion 
also that the commissioners erred in including in their 
assessment the stocks of corporations created by and under 
the laws of other States. Such corporations are taxable, 
and we must presume, in the absence of proof, that taxes 
in their respective home States are duly assessed and col- 
lected upon their capital stock or property. The stocks in 
such corporations, held by individuals here, are simply 
representatives of capital or property employed in business 
in other States, the title of which is vested in and controlled 
by the artificial person created by and residing in such 
States. They represent an interest which is or may be- 
come a membership in the corporation and evidence of a 
right to participate in divided profits and in the ultimate 
dividend of surplus after the payment of debts and obliga- 
tions of the corporation. The stock certificates are not 
themselves the property, but are evidences of the rights 
31 



474 THE THEORY AND PRACTICE OF TAXATION. 

just mentioned; to be possessed, enjoyed, and enforced 
under and in conformity with the laws of the State which 
created the body corporate." 

The views thus expressed respecting the inconsistency 
and undesirability of directly taxing titles, credits, obliga- 
tions of indebtedness, and instrumentalities of exchange 
are so generally and thoroughly accepted by the statesmen, 
financiers, and economists of Europe, that no recognition 
of this form of taxation can, it is believed, be found in any 
of their fiscal systems. In England the very idea would 
be scouted; and in France, where the need of great reve- 
nues is most imperative, and resort has been had to almost 
every other device and expedient for collecting contribu- 
tions from its people, the taxation of titles and credits has 
never been contemplated. Some years since (1879), when 
the State of California adopted a new Constitution, and, 
in virtue of the statutes subsequently enacted under it, 
made subject to additional taxation bonds, moneys, promis- 
sory notes, certificates of indebtedness, and shares of stock 
in corporations otherwise taxed, the utter absurdity of such 
action was thus strikingly demonstrated in one of the San 
Francisco papers by the following humorous illustrations : 

" A has a horse ; B has nothing, but is honest and in- 
dustrious. B buys A's horse and gives his promissory note 
for one hundred dollars. The horse previously taxed as 
property in A's hands is now taxed as property in B's 
hands, and A is taxed — just as much as he was before — on 
B's note, which is property also. That is to say, the new 
Constitution holds that by a mere stroke of his pen, B, 
who has nothing, and can give himself nothing, can in- 
stantaneously create as much property for others as others 
may happen to think that he will some day be able to 
acquire. Truly the performance of the man who causes 
two trees to grow where but one grew before is of so little 
comparative benefit that he might be justly censured for 
a sin of omission. 

"Let us suppose that B had given not a written but 
an oral promise. Ought not A to be taxed on that? If 
not, why not? Because an oral promise is not an evidence 
of debt? not a ' credit ' ? * But how if there were wit- 

* Promises, according to Professor McLeod, are property. 



A CALIFOKNIAN EPISODE. 475 

nesses? Oral promises are credits, however; nay, even 
implied promises are. Yon have to pay — the courts will 
make you pay — your tradesman's account whether you have 
ever passed your word or not. 

" Now a ' credit/ be it promissory note, mortgage, 
certificate of deposit, or what you will, is not only not 
property, but is proof that the holder has parted with prop- 
erty that he once had. His paper credits, which merely 
certify that in consideration of certain advantages (in- 
terest, freedom from cares of management, etc.) he has 
surrendered his property to another, have no function but 
that of enabling him at some future time not to resume 
his own, for it is no longer his, but to acquire its equiva- 
lent from the present owner. The more a man has of these 
things, which it is proposed to tax as property, the poorer 
he is — not necessarily poorer than a man with none, but 
poorer than himself was before he got them. It was only 
by surrendering them that he can become again as wealthy 
as he was. 

" Is he then to escape taxation, living at his ease on his 
interest, while the man who pays it bears the expense of 
government for both? Let us see if under the present 
system the latter does anything of the kind. X wants a 
thousand dollars of Z, for which he can afford to pay, 
say, sixty dollars a year. But if the State government is 
going to exact from him ten dollars, he can afford to give 
Z but fifty, with which that person must be content, or 
X will either get the money from another or not take it 
at all. It is clear, therefore, that the lender really pays 
the tax, the borrower being unaffected directly; what he 
pays to the State he would otherwise have to pay to thej 
lender. Indirectly he is affected thus: Taxation of the 
principal, by reducing the interest, reduces also the volume 
of borrowable money by driving a part of it into more 
profitable investment, and the scarcity so created tends 
to restore the rate of interest, the cause thus counteracting 
its own effect, as the slackening in the speed of a steam 
engine is the agent that increases its velocity. 

" Eeverting to the matter of the horse, we find that 
quadruped in the possession of B and a note for one hun- 
dred dollars in the hands of A. Kelying on B's payment 
of the note, A purchases a hundred dollars' worth of flour 



476 THE THEORY AND PRACTICE OF TAXATION. 

from C, giving his note. C knows that A is good for the 
amount, and gives his own note for a hundred dollars for 
a barrel of whisky to D, who then feels rich enough to pur- 
chase a thousand cigars, at ten dollars a hundred, from E, 
satisfying him with a note. At the end of a month D's hos- 
pitable friends have burned all that gentleman's cigars ; C, 
in one protracted, solitary revel, has gone through his bar- 
rel of whisky like a rat through a water pipe; A's family 
and retainers have consumed his flour like a flame in flax ; 
and B's charger, broken by the weight of the financial su- 
perstructure reared upon his patent person, lies deadwise 
on the plain, with daisies at his head and at his feet. But 
he has left a legacy of taxable ' solvent credits ' that does 
honour to his memory better than a monument of brass, 
and 

" ' Nothing beside remains round that colossal wreck ! ' 

"Working for a dead horse is, however, proverbially 
disheartening, and it is some years before B has put by 
enough money to discharge his debt to A, and has thereby 
rendered him unable to pay C, whose habit of being 
supinely drunk has made the expensively befriended D 
whistle in vain for the wherewithal to pay E. But finally 
B hands a hundred dollars to A, who hands it to C, who 
hands it to D, who hands it to E; and four hundred dol- 
lars' worth of taxable property, on which the government 
of this State had been living, like St. Simon Stylites on 
his capital, vanishes into thin air; for the notes go to the 
kitchen stove, and the new Constitution made no provision 
for taxing the ashes. 

" Charles Young takes a pig in payment for his paper 
— like for like. Being a Jew, Mr. Young has conscientious 
scruples against eating pork, so he sells his pig to a 
butcher, taking his note. The butcher, finding the ani- 
mal more than usually intelligent, thinks it would be 
wrong to hide the light of its political sagacity under a 
bushel of salt, and sells it alive to Clitus Barbour to repre- 
sent that statesman, who helped to launch the new Con- 
stitution. Clitus gives his note for the pig. Becoming 
jealous of its rivalry, he sells it to Governor Kearney (tak- 
ing his note), whose parlor it graces for a season, but, 
being detected in an indiscretion, the Governor sells it to 



MONEY PROPERTY. 47? 

General Howard, who gives his note. General Howard 
wants this pig to write letters favouring the new Con- 
stitution; but, as it scorns to prostitute its intellect that 
way, its less scrupulous owner parts with it to the con- 
gregation of Metropolitan Temple, whose pulpit it now 
fills, they giving their note and a benediction. 

" The foregoing pig is now represented by five promis- 
sory notes and a benediction not taxed. None of these 
notes bear interest, nor are they of any benefit to their 
holders except as they may enable them, at a stated time, 
to get something of the same value as something previously 
renounced. The various notes make a trail of papers like 
that left by the ' hare ' in the boys' game of ' hare and 
hounds/ Now comes the assessor under the new Consti- 
tution, and, in obedience to a righteous provision taxing 
property used for religious purposes, assesses that porker 
in the bosom of the church. Then he strikes the paper 
trail extending out through secular spaces into an editorial 
office, and, having assessed the grunter where it is, he again 
assesses it where it was last, and again where it was the 
time before, and so on through the whole series, until that 
not very valuable flitch of bacon, which has ' dragged at 
each remove a lengthening chain ' of l solvent credits/ has 
been the innocent cause of six payments into the State 
treasury. Beyond Mr. Young the assessor does not trouble 
himself to go, for on the ranch of a granger who is bo 
intelligent as to exchange pigs for his papers the pachy- 
derm's trail consists of tracks in the mud, and these the 
new Constitution neglected to declare to be property." 

Monet Property. — But, after all, says some objector, 
"notwithstanding your many and plausible arguments — 
your statement that all the world except the United States 
have done away with the old, atomic, inquisitorial system 
of taxation — I do not like your proposed reforms, and for 
the reason mainly that they exempt ' money property ' ! " 
It is most important, therefore, to inquire what is " money 
property," and also its relations to local taxation. 

All capital or property is accumulated labour, labour 
being the source of all property. Hence any attempt to 
excite prejudice against capital or property, or to attack 
either, is an attack upon labour itself. 

" Moneyed property " is generally understood to mean 



478 THE THEORY AND PRACTICE OF TAXATION. 

evidences of debt, which are not in a strict sense property; 
but rights to property, or assignments of property, accord- 
ing to the amount of interest of the creditor. 

What is a Mortgage? — A mortgage may be denned 
to be a species of conveyance of property — generally real 
estate — for the security of a debt, generally created by a 
loan of money, and can not be regarded as a complete, but 
rather a conditional or quasi-title of the property covere'd 
by the conveyance. It is not so much property as a deed; 
and neither is property except to the extent of the value 
of the paper and the labour of writing or printing it, 
and still both are very valuable as conveying rights to 
property. The property is the real estate conveyed or 
mortgaged, and a tax on the land and another tax on the 
deed, or a tax on the land and another tax on the mort- 
gage which covers the land, will in effect be a double tax 
on the land. This tax may be made a quadruple tax: 
first on the land, then on the deed of the land, then on 
the mortgage which is on the land, and then on the lease 
which the landlord may grant to the tenant. 

The following curious instance of hardship in taxing 
mortgages actually occurred in one of the counties of cen- 
tral New York under the existing system : A 'worthy farmer 
and his wife, finding themselves becoming incapacitated 
through age from taking practical care of their little farm, 
sold it for five thousand dollars, and allowed the pur- 
chase money to remain in the form of a mortgage, with 
the expectation of living on the interest paid annually by 
the purchaser from the profits of the farm. The town 
being very small, the fact of the sale and the considera- 
tion paid became known to every one, and the assessors 
were compelled, in opposition to their usual practice, to 
tax the old man to the full amount of the mortgage, as 
personal property. But the year in which this was done 
happened to be a year in which the town, anxious to avoid 
a draft of men for the army, to which the old man was 
not liable, put up the rate of taxation to more than the 
legal rate of interest, in order to provide sufficient money 
to purchase recruits. The result was that the poor old 
man and his wife found that not only was all their in- 
come from the mortgage swept away by the tax collector, 
but they were even obliged to go out for days' work, in 



TAXATION OF INDEBTEDNESS. 479 

order to pay a balance of taxation and provide means of 
support; and this, too, while the identical farm for which 
the mortgage was given was taxed at one fifth its true 
value, and other investments of other citizens of an in- 
visible and intangible character undoubtedly escaped taxa- 
tion altogether. And this we call equality in taxation. 

To Tax Indebtedness is to Tax the Borrower. — 
If any one doubts that a tax on indebtedness is a tax upon 
the borrower, or the property which the indebtedness covers, 
that question can be easily solved by an honest, uniform 
tax on all State, county, town, and city bonds hereafter 
issued, by making them all subject to an annual tax of 
one, two, or more per cent, and by providing that the 
tax shall be deducted at the time of the payment of the 
interest. Is there any one who believes that these bonds 
will sell in the market at the same high rate that they 
would command if by law they were free from taxation ? 

We can also test the effect of an honest, uniform tax 
upon mortgages by providing that mortgages hereafter 
made shall operate to reduce for assessment the valuation 
of the land mortgaged to the amount of the mortgage, and 
that the mortgagor shall pay the tax on the mortgage, 
and deduct the tax from the principal or interest, when 
paid to the mortgagee. But who believes, under such a 
law, that any money would be loaned at the legal rate of 
interest ? 

A somewhat curious piece of practical evidence, in sup- 
port of the truth of the above position, in respect to the 
taxation of mortgages, has been afforded by an experi- 
ence of New Jersey. This State exempted, in 1869, all 
mortgages from taxation in certain of her counties and 
cities which lie contiguous to New York city; but this 
legislation, although operating to draw capital away from 
New York and into New Jersey, was not primarily effected 
for any such reason, but was brought about in this wise: 
New Jersey, in the first instance, enacted an honest, uni- 
form law of taxing mortgages, and one, moreover, which 
could with the utmost certainty be executed, and similar 
in principle to that above suggested; namely, that the 
person giving the mortgage should pay the tax on it, and 
deduct the tax from the principal or interest in settling 
with the creditor. The result was that all mortgages fall- 



480 THE THEORY AND PRACTICE OF TAXATION. 

ing due were immediately foreclosed, and as no new loans, 
moreover, could be made, the inhabitants of the growing 
counties near the city of New York, wishing to borrow 
money on land, or to sell land, found themselves in an 
uncomfortable position ; so much so, that if the law taxing 
mortgages in this section of New Jersey had not been 
promptly repealed by the Legislature, the issue would soon 
have become a predominant one in the State elections; 
and hence the explanation of one of the most curious 
statutes in the history of American legislation which made 
one tax law for one part of the State and another and a 
different one for the remainder.* But the point of chief 
interest in respect to this whole tax experience to which 
attention should be especially directed, is, that it did not 
take the citizens of New Jersey a great length of time to 
find out that a borrower of money on a mortgage paid 
the tax, and that the lender was the tax collector, and only 
paid his part of a diffused tax, as all other persons living, 
consuming, buying, or selling in the State must pay; and 
that if the borrower could not legally pay the lender a rate 
equal to other net profits of investments, he could not 
borrow. A little experimental legislation in other States 
will, therefore, effectually explode the vague theory that 
taxes uniformly levied do not diffuse themselves; and al- 
though it is true that the persons or property primarily 
taxed do not charge the entire tax over to others, this 
very fact nevertheless shows that the tax is diffused with 
absolute equality upon the persons who originally may 
pay the tax, and upon those who finally bear their por- 
tion of it. 

Loans on Mortages prohibited in Eome. — Momm- 
sen, in his History of Eome, states that at one period the 
lending of money in that country on mortgages was pro- 
hibited, and it is apparent that a uniform taxation of 

* " And all mortgages upon estates, chattels, or personal prop- 
erty, taxable by law within said counties of Hudson, Union, Essex, 
and the city of Brunswick, Middlesex County, and the county of 
Passaic, except the townships of West Milford, Pompton, and 
Wayne, for State, county, township, and city purposes, shall be 
exempt from taxation when in the hands of any inhabitant, cor- 
poration, or association residing or located in said counties or 
cities." (Approved April 2, 1869.)— Laws of New Jersey, 1869, 
p. 1225. 



GOVERNMENT BONDS. 481 

mortgages would amount to a prohibition as effectual as 
the prohibition which existed under the Koman law. The 
Eoman patricians, in their legislation, wished to prevent 
the common people from becoming an independent yeo- 
manry, and owning and acquiring real estate through the 
facilities of borrowing upon mortgages. No chimerical 
attempt had then ever been made to tax money at interest, 
and this purpose of having the soil cultivated on shares 
or by dependent tenants could best be obtained by a 
prohibition of all mortgages. 

Now, it needs no argument to show that a system of 
onerous taxation of mortgages must have a tendency to 
re-enact the Eoman policy, and that it is undoubtedly 
the true interest of the state, on both political and eco- 
nomical grounds, to encourage occupiers to become owners, 
who always give better attention and protection to their 
own property than to the property of landlords. 

Purchasers of Government Bonds not practical- 
ly exempt erom Taxation. — The purchasers of United 
States, State, and municipal bonds or securities, which 
are nominally exempt from taxation, are in effect taxed, 
and uniformly taxed in the high price which they are 
obliged to pay for these securities by reason of their ex- 
emption from taxation. It is not only a sound principle 
of political economy that a tax upon money at interest 
is simply a tax upon the borrowing price of the bor- 
rower, causing an increased rate of interest, or a reduced 
price to be obtained for the obligation given; but this 
principle has been adjudicated by the highest court of 
the country, so far as a court of last resort can adjudicate 
a great principle in economic science. Thus, in the case 
of Weston vs. The City of Charleston (2 Peters, 449), the 
Supreme Court of the United States, through Chief-Jus- 
tice Marshall, held that " a tax on Government stock is 
a tax on the poiuer to oorroiu money on the credit of the 
United States." If, therefore, we except the borrower 
from taxation in the form of a decreased rate of interest, 
we grant him no special exemption or advantage, for his 
property, which is covered by the debt, has already in 
other forms been taxed, and the exemption will diffuse 
itself in the form of lower rate of interest, which will be 
the means of producing a higher price of labour, land, 



482 THE THEORY AND PRACTICE OF TAXATION. 

and personal property, until the exemption is completely 
diffused. Who will then be injured by taking the tax from 
money at interest? It is probable that he who now adds 
the tax to the rate of interest, and charges the borrower, 
and does not pay it to the State, may lose by the change. 
He will be obliged to enter the open money market and pay 
the market rate, as the purchasers of Government bonds 
now do, for evidences of debt that will be free from taxa- 
tion in the hands of all persons; and the laws of trade 
will regulate his investment as they daily regulate the 
price of Government bonds, and will bring down his securi- 
ties to a rate of interest not much above the rate paid by 
the national Government. The exemption applied to 
United States bonds, which is of no practical benefit to 
the present purchasers, in consequence of the increased 
price of the bonds, would be of no benefit if applied to 
the holder of other securities in an established and perma- 
nent system, except in freedom from the uncertainties and 
irregularities attending the exercise of arbitrary and irreg- 
ular power. If the exemption is an exemption of every- 
thing of the same class, it is perfectly equal and fair, and 
its effect is diffused and equated; and the tax on another 
article, taxed in lieu of the exempted class of articles, is 
likewise equated and diffused, and if invisible and im- 
ponderable evidences of debt can not be taxed equally 
no injustice will arise if they are all free from primary 
taxation, and if the taxes of a permanent system are im- 
posed on other things subject to positive and fixed rules 
of assessment. The daily price of United States bonds, 
therefore, is a constant lesson that an exemption of a 
security from taxation is an exemption of the borrower, 
and the same law of political economy will rule in respect 
to both private and public debts. Each State has, there- 
fore, the power to put its borrowers on an equal footing 
with the General Government, and without injustice or 
inequality toward the borrower or the lender. 

The Old and New Ideas in Taxation. — The first at- 
tempt made to tax money at interest was instigated against 
money lenders because they were Jews; but the Jew was 
sufficiently shrewd to charge the full tax over to the Chris- 
tian borrower, including a percentage for annoyance and 
risk; and now most Christian countries, as a result of 



TAXATION OF MONEY. 483 

early experience, compel or permit the Jew to enter the 
money market, and submit, without let or hindrance, his 
transactions to the "higher law" of trade and political 
economy. But a class yet exist who would persecute a 
Jew if he is a money lender, and they regret that the good 
old times of roasting him have passed away. They take 
delight in applying against him, in taxation, rules of 
evidence admissible in no court since witches have ceased 
to be tried and condemned. They sigh at the suggestion 
that all inquisitions shall be abolished; they consider 
oaths, the rack, the iron boot, and the thumbscrew as the 
visible manifestations of equality. They would tax pri- 
marily everything to the lowest atom; first for national 
purposes, and then for State and local purposes, through 
separate boards of assessors. They would require every 
other man to be an assessor or collector, and it is not 
probable that the work could then be accomplished with 
accuracy. The average consumption of every adult in- 
habitant of the United States is at least two hundred 
dollars annually, or in the aggregate $1,500,000,000 ; and 
this immense amount would fail to be taxed if the assess- 
ment was made at the end of the year, and not daily, as 
fast as consumption followed production. All this com- 
plicated machinery of infinitesimal taxation and mediae- 
val inquisition is to be brought into requisition for the 
purpose of taxing " money property," which is nothing 
but a myth. The money lender parts with his property 
to the borrower, who puts it in the form of new buildings, 
or other improvements, upon which he pays a tax. Is not 
one assessment on the same property sufficient? But if 
you insist upon another assessment on the money lender, 
it requires no prophetic power to predict that he will add 
the tax in his transactions with the borrower. If a tax 
of ten per cent was levied and enforced on every bill of 
goods, or note given for goods, the tax would be added to 
the price of goods, and how would this form of tax be 
different from the tax on the goods ? 

" Money property," except in coin, is imaginary, and 
can not exist. There are rights to property of great value. 
The right to inherit property is valuable; and a mortgage 
on land is a certificate of right or interest in the property, 
but it is not the property. Land under lease is as much 



484: THE THEORY AND PRACTICE OF TAXATION. 

" money property " as a mortgage on the same land ; both 
will yield an income of money. Labour will command 
money, and is a valuable power to acquire property, but 
is not property. If we could make property by making 
debts, it can not be doubted that a national debt would 
be a national blessing. Attacking the bugbear of " money 
property " is an assault on all property ; for " money 
property" is the mere representative of property. If we 
tax the representative, the tax must fall upon the thing 
represented. 



CHAPTER XXII. 

TAXATION" OF CHOSES IN" ACTION". 

In addition to the review of the celebrated Foreign- 
held Bond Case * decided by the United States Supreme 
Court in 1893, it is proposed to call attention here to 
additional and interesting features of this case which 
have not been hitherto noticed in this connection. 

The court having decided the situs for taxation of 
negotiable instruments — railroad bonds, etc. — took occa- 
sion also to affirm the taxable situs of such other personal 
property, or evidence of indebtedness, as is generally in- 
cluded under the term choses in action, using in so doing 
the following language: 

" But other personal property, consisting of bonds, 
mortgages, and debts generally, has no situs independent 
of the domicile of the owner, and certainly can have none 
where the instruments, constituting the evidence of debt, 
are not separated from the possession of the owner." 

As thus expressed, the reasons given by the court for 
separating for taxation the situs of the two classes of 
personal property under consideration are so clear, and 
so in accordance with common sense, as hardly to require 
any further explanation; and, therefore, it seems only 
necessary to assist the reader, who, if a taxpayer, is cer- 
tainly interested in knowing the tax liability of his prop- 
erty, by recalling that while, in the case of negotiable 
instruments, the title to the property runs with the instru- 
ment and passes by delivery, in the case of bonds, mort- 
gages, and sales made to particular persons, and thus 
non-negotiable, the title, on the other hand, does not run 
with the instrument, but exclusively with the person of 
the owner; so much so, that the attachment of a mort- 

* Ante, p. 452. 

485 



486 THE THEORY AND PRACTICE OF TAXATION. 

gage, or the possession by theft or finding of a note pay- 
able to a person, does not in any degree alienate or impair 
its original and legitimate ownership. The decision of 
the court, therefore, brings all classes of personal property 
under one harmonious and consistent rule for the purpose 
of taxation, legal attachment, and protection, by affirming 
that their situs as property is only where they are; which 
in the case of visible and tangible objects and negotiable 
instruments, is dependent, from the very nature of things, 
upon actual and not constructive presence, and in the 
case of choses in action upon the domicile of the owner; 
and in thus deciding, the court simply followed English 
precedents of long standing and the highest character.* 

It may, however, be objected that the practical effect 
of this decision has been to relieve all negotiable instru- 
ments from taxation, inasmuch as, removed beyond the 
territory and jurisdiction of the State in which their 
owner resides, they will not, by reason of easy conceal- 
ment (for which safe-deposit companies in the larger cities 
of most of the States now offer great facilities), be easily 
cognizable by the assessors of the locality in which they 
are deposited. But admitting the objection in full force, 
as in all reason we must, what then ? The Supreme Court 
has given its opinion clearly and unmistakably; and until 
this opinion is reversed, it constitutes the legitimate rule 
of action for both assessors and taxpayers. But suppose 
it were possible to reverse the opinion in question, would 
it be expedient to do so? Would it be desirable to aban- 
don the plain common-sense view that the situs for the 
taxation of all personal property is where the law pro- 
tects it, and where alone an assessment and a legal attach- 
ment against it can be enforced, and in its place make 
situs depend on visibility? And if visibility, what degree 
of visibility? Shall a diamond, a bar of gold, or a rail- 



* Lord Ellenborough, in King's Bench (Neilage vs. Holloway, 
Barnwell and Allison's Reports, 318), having decided that a nego- 
tiable note was a chattel personal and not a chose in action; Lord 
Abinger, that all foreign government bonds payable to bearer have 
a situs where they are actually situated; and the House of Lords, 
that registered stocks and bonds of the United States and of the 
several States not passing by delivery, are not negotiable instru- 
ments, and therefore not taxable as goods and chattels. 



TAXATION OF MORTGAGES. 487 

road bond, belonging to A. B., residing in Boston, but 
openly displayed in a jeweller's or broker's window in 
Philadelphia, be taxable in Pennsylvania, and a similar 
diamond, gold bar, or bond of the same owner, deposited 
in a drawer of the same shop or office and not so readily 
visible, be taxable in Massachusetts? Shall we make the 
situs of property for taxation depend upon the keenness of 
perception or visual organs of an assessor? Or shall we 
not, rather, admit that the attempt to raise revenue by 
taxing such property as negotiable instruments which 
from their very nature are in a high degree intangible and 
invisible, and thus easy of concealment; which, passing 
by delivery, are here to-day and somewhere else to-mor- 
row; which are not taxed in any other highly civilized 
country, and which are in great part, even in this country, 
specifically exempted by law — i. e., United States bonds, 
legal tender, national bank notes, etc. — is in itself an ab- 
surdity and a wrong; inasmuch as to enforce a levy from 
one man for one species of property, because through 
his honesty, ignorance, or inability to escape he can be 
laid hold of, and allow identically the same description 
of property in the possession of another man to escape 
because of varying circumstances beyond the control of 
the assessors, is not taxation in any sense, but simply arbi- 
trary taking. The court itself, in referring to the tax 
under consideration, said with great point and truth : " It 
is only one of many cases where, under the name of taxa- 
tion, an oppressive exaction is made, without constitu- 
tional warrant, amounting to little else than an arbitrary 
seizure of private property. It is, in fact, a forced con- 
tribution levied upon property held in other States, where 
it is subjected, or may be subjected, to taxation upon an 
estimate of its full value" 

Decision of the Supreme Court of California on 
the Taxation of Mortgages. — Any review of the history 
of local taxation in the United States would be imper- 
fect which failed to notice a notable and interesting de- 
cision given in May, 1873, by the Supreme Court of Cali- 
fornia in regard to the taxation by its State authorities 
of real-estate mortgages. The question was one that for 
a considerable time had greatly interested the people of 
California, and the drift of popular sentiment of San 



488 THE THEORY AND PRACTICE OF TAXATION. 

Francisco seems to have been most unmistakably in favour 
of their taxation. But how to do it, and at tne same 
time not increase the burden on the borrower, who had 
mortgaged his land as security for a loan of capital to 
improve or stock it, was a problem that not a little 
troubled the lawmakers in Legislature assembled. One 
proposition brought forward contemplated a deduction 
from the amount of land tax of the assessment on the 
mortgage; but as the lands of California were found, as 
a rule, to be taxed far below their value, and the mort- 
gages for a value far in excess of the assessor's appraise- 
ment of the land they covered, it soon became apparent 
that this scheme was to a greater or less extent equiva- 
lent to exempting the land and taxing the mortgage. An- 
other proposition, embodied in a bill introduced into the 
Assembly, was to make void all contracts by which bor- 
rowers agreed to reimburse lenders in the amount of the 
mortgage tax ; while others again were exceedingly strenu- 
ous in favour of trying the pleasing little experiment — 
which no community having once tried ever desires to 
repeat — of providing that the person giving the mort- 
gage should pay the taxes upon it, but be at the same 
time authorized to deduct the tax from the principal, or 
interest, in settling with his creditor. Pending these dis- 
cussions, however, the Supreme Court, which had the ques- 
tion before it on a suit to which one of the savings banks 
of San Francisco was a party, rendered a decision, that 
in virtue of a clause in the Constitution of the State re- 
quiring all taxation to be equal and uniform, the taxation 
of mortgages was unconstitutional and illegal; inasmuch 
as to tax a given property and then tax a mortgage on it, 
which mortgage is not in itself property, but, like a deed 
or lease, is a species of conveyance or acknowledgment 
of a conditional interest or right in the property, is not 
equal and uniform taxation, but an unequal and double 
tax on the property mortgaged. 

The importance of this decision, considered as an act 
reformatory of the popular theory of local taxation, does 
not require to be proved and illustrated; but as it was 
unquestionably a step in advance of any heretofore taken 
by either our Federal or State courts, and as, by reason 
of it, not only were mortgages exempted from taxation 



MORTGAGOR PAYS TWO TAXES. 489 

in California, but also all promissory notes and other evi- 
dences of indebtedness, it is desirable briefly to ask atten- 
tion to the reasoning by which the court was led to its con- 
clusions. 

The opinion was given by the Chief Justice — Crockett 
— who, after reviewing the history of the case, is reported 
to have used the following language: 

" I come now to the point, whether a tax on land at 
its full value, and a tax on a debt for money loaned, 
secured by a mortgage on the land, is in substance and 
legal effect a tax on the same property. We all know, 
as a matter of general notoriety, that almost universally, 
by a stipulation between parties, the mortgagor is obliged 
to pay the tax both on the land and on the mortgage. 
Practically he is twice taxed on the same value, if he has 
still in his possession the borrowed money to secure which 
the mortgage was made. The law taxes in his hand both 
money and land; and by his stipulation he is required 
to pay tax on the mortgage debt, and also, if the money 
has passed out of his hands into the possession of some 
other taxpayer, it is taxed in the hands of the latter, so 
that the money bears its share of taxation, and the land 
its share, in the hands of whomsoever they may happen 
to be. 

" It is very true that a voluntary agreement on the 
part of the mortgagor to pay the tax on the mortgage 
debt can not improve its situs. The State was no party 
to the contract, and is not bound by stipulation inter 
alias. The burdens of taxation can not be shifted from 
those on whom the law imposes them by stipulations be- 
tween private persons ; but in the absence of such a stipu- 
lation, an inexorable law of political economy would im- 
pose upon the mortgagor the burden, in a different form, 
of paying the tax on the mortgage debt. Interest on 
money loaned is paid as a compensation for the use of 
the money, and a rate of interest as agreed on is the 
amount which the parties stipulate will be the just equiva- 
lent to the lender. If, however, by the imposition of a tax 
on the debt, the Government diminishes the profit which 
the lender would otherwise receive, the rate of interest 
will be sufficiently increased to cover the tax, which in 
this way will be ultimately paid by the borrower. The 
32 



490 THE THEORY AND PRACTICE OF TAXATION. 

transaction would be governed by the same immutable, 
inflexible law of trade by reason of which import duties 
on articles for consumption are ultimately paid by the 
consumer, and not by the importer. The rate of interest 
on money loaned is regulated by the supply and demand 
which govern all articles of commerce; and the burdens 
imposed by law in the form of a tax on the transaction, 
which would thereby diminish the profits of the lender, 
if paid by him, will prompt him. to compensate for the 
loss by increasing to that extent the rate of interest de- 
manded. If his money would command a given rate of 
interest without the burden, he will be vigilant to see that 
the borrower assumes the burden, either by express stipu- 
lation, or in the form of increased interest. This is the\ 
law of human nature, which statute laws are powerless to 
suppress, and which pervades the whole of trade governed 
by the law of supply and demand. Nor would the enact- 
ment of the most stringent usury laws produce a different 
practical result. Human ingenuity has hitherto proved 
inadequate to the task of devising usury laws which were 
incapable of easy evasion; and wherever they exist they 
are, and will continue to be, subordinate to that higher 
law of trade which ordains that money, like other articles 
of commercial value, will command just what it is worth 
in the market, no more and no less. Assuming these prem- 
ises to be correct, and I am convinced that they are, it 
results that it is the borrower, and not the lender, who 
pays the tax on borrowed money, whether secured by mort- 
gage or not; but if secured by mortgage, he is taxed not 
only on the mortgage and property, but on the debt which 
the property represents and which is held as a security 
for the debt." * 

* Of the soundness of this decision there could probably be no 
more convincing illustration than the statement that upon its an- 
nouncement the savings banks of San Francisco gave notice that 
they would immediately reduce the rate of interest on their loans 
secured by mortgages by the amount of the tax on the mortgage. 
And the Alta-California of May 9th, in commenting upon the de- 
cision, says: "When the news arrived here yesterday morning" 
(that the Supreme Court had given a decision) "it was not unex- 
pected; and the idea conveyed by the false rumours set afloat, that 
the decision was adverse to the savings banks, was accepted as 
a decision measured by expediency, and not based on sound legal 



ABSURDITIES INVOLVED. 491 

Subsequently the Hibernia Savings Society of San 
Francisco having resisted under the provisions of the Con- 
stitution of California the taxation of mortgages given 
to secure the loan of property, the Supreme Court again 
met the case fairly and squarely — its language by Justice 
Wallace being reported as follows : " Mere credits are a 
false quantity in ascertaining the sum of wealth which 
is subject to taxation as property, and so far as that sum 
is attempted to be increased by the addition of these 
credits, property based thereon is .not only merely fanci- 
ful, but necessarily the imposition of an additional tax 
upon a portion of the property already once taxed. The 
taxation thus imposed, nominally upon credits, having 
resulted in the double taxation of money, the additional 
tax must be paid by some one. And here all experience, 
as well as all settled theories of finance, concur that it is 
not the lender who pays, but the borrower. The borrower 
is the consumer; the interest that he pays to the lender 
is the prime cost of the delay for which he has contracted. 
If the Government, by the imposition of additional taxes, 
increase the cost, the borrower, being the consumer, must 
pay for it." 

The court, through Justice McKinstry (the Chief Jus- 
tice's opinion being in concurrence), enumerated, as fol- 
lows, some of the absurdities to which an attempt to in- 
clude choses in action in the definition of property would 
necessarily lead: 

" Supposing," he said, " that the necessaries of Gov- 
ernment required a tax of one hundred per cent on all 
values, or, what would be the result of such a tax, an 
appropriation of all the property in the State — it is plain 
that the State would receive no benefit from evidences of 
debt due by some of her citizens to others, and payable 
out of the tangible property which the State had already 
taken. 

" The Legislature may declare that a cause of action 

principles. Special despatches received changed the result; and 
when it became evident that the banks and the mercantile com- 
munity had triumphed, a general feeling of satisfaction was every- 
where noticeable. Merchants, bankers, and taxpayers generally 
received the news with the feelings of men who felt relieved from 
a terrible incubus." 



492 THE THEORY AND PRACTICE OF TAXATION. 

shall be taxed, but a cause in action can not pay the tax; 
and this because it has, and can have, no value independent 
of the tangible wealth out of which it may be satisfied. 

" It may be possible in every case to show that the 
debtor has paid the tax assessed to his creditor. But it 
admits of mathematical demonstration — if other property 
in the State has been assessed at its value — that the money 
which shall ultimately satisfy the debt (if it ever is satis- 
fied) has paid the tax. If it were practical to assess all 
the property in the State at the same moment of time, it 
would be clear to every mind that an assessment of a credit 
was an attempt to transfer to it a value elsewhere assessed. 
If a debtor was found to be the owner of one thousand 
dollars, and is assessed for that sum, and his creditor is 
found to be the owner of his note for one thousand dollars, 
and is assessed for a like sum; and if the day after the 
visit of the assessor to the creditor the debtor shall pay 
his note, it is clear that this same value has been twice 
taxed; since the debtor has parted with his money, and 
received only that which is certainly not taxable property 
in his hands, and which can never afterward be assessed. 
When a debtor pays his debt, he does not abstract or de- 
stroy any portion of the taxable property of the State ; the 
aggregate of values remains the same." — Opinion of Jus- 
tice McKinstry* 

Suppose, " were such a thing possible, that the entire 
tax rolls exhibited nothing but indebtedness. Taxation 
under such circumstances would, of course, be wholly 
fanciful, as having no actual basis for its exercise." — 
Opinion of Chief-Justice Wallace. 

* See the article by Carl C. Plehn, on the Taxation of Mort- 
gages in California, in the Yale Review, May, 1899. 



CHAPTER XXIII. 

THE CASE OF KIRTLAND VS. HOTCHKISS. 

The above designation has been popularly given to 
one of the most important questions that has ever come 
before the legal tribunals of this country, and the record 
of which has been heretofore so difficult of access that it 
has not attracted the attention it merits, but which it is 
to be hoped will prove at no distant period a subject of 
popular interest and future judicial consideration. 

The particulars of the case are in the main as follows : 
In 1869, or previous, Charles W. Kirtland, a citizen 
of Woodbury, Litchfield County, Connecticut, loaned 
money, through an agent, a resident and citizen of Illinois, 
on bonds secured by deeds of trust on real estate in the 
city of Chicago. Each of these bonds declared that " it 
was made under and is in all respects to be construed by 
the laws of the State of Illinois," and that the principal 
and interest of the obligation were payable in the city of 
Chicago. The deed of trust also contained a provision 
that all taxes and assessments on the property conveyed 
should be paid by the obligor (borrower) without abate- 
ment on account of the mortgage lien; that the property 
might be sold at auction, in Chicago, by the trustee, in 
case of any default of payment, and that a good title, 
free from any right of redemption, on the part of the 
obligor, might in that case be given by the trustee. An- 
other interesting feature of the case not to be overlooked 
was, that pending the proceedings to be next related, the 
loans as originally made became due and were paid; when 
the proceeds, without being removed from Illinois and re- 
turned to Mr. Kirtland in Connecticut, were reinvested 
in Chicago by his agent, under terms and conditions as 
before. 

493 



494 THE THEORY AND PRACTICE OF TAXATION. 

These facts becoming known to the tax officials of the 
town of Woodbury, they added in 1869 to the list of prop- 
erty returned by Kirtland for the purpose of taxation, as 
situated within the State, the sum of eighteen thousand 
dollars ; and in 1870 the sum of twenty thousand dollars, 
to represent the amount of property owned and loaned by 
Kirtland, in each of these years, as was conceded, without 
the territory of the State. The sums thus added were 
subsequently assessed in the town of Woodbury in the 
same manner and at the same rate as was other property 
which Mr. Kirtland owned within the State and there 
situated. 

Payment of the taxes thus assessed on the amount of 
these Illinois loans being refused by Kirtland, the tax 
collector (Hotchkiss), in April, 1873, levied his tax war- 
rants on the real estate of the alleged delinquent in Wood- 
bury, and advertised the same for sale; and on petition 
for injunction to restrain the collector from such pro- 
ceedings, on the ground of the illegality of the tax in 
question and its assessment, the case came before the court 
of last appeal in the State, known as the " Supreme Court 
of Errors " ; it being agreed by all parties concerned that 
the only question in the case was whether the bonds 
owned by Kirtland, drawn in the form and manner stated, 
were liable to taxation in Connecticut. 

Case for the Respondent. — In the argument before 
and in the opinion rendered by this court the following 
were the points mainly relied upon in support of the posi- 
tion that the petition for injunction in restraint of the col- 
lection of the tax should not be granted: First, that the 
statutes of Connecticut explicitly authorized and required 
the taxation of debts due its citizens from parties out of the 
State. Second, in respect to the power of the Legislature of 
Connecticut to authorize and require such form of taxation, 
it was claimed that there was no provision in the Consti- 
tution of the State limiting and defining such power of 
taxation. Third, the following characterization of the 
nature of a debt or a chose in action, and its suitability 
as a subject for taxation for the purpose of obtaining reve- 
nue, was put forward by the counsel for the State as a 
statement of economic conclusions worthy of full accept- 
ance. " It [a chose in action] has not a visible, tangible 



CASE FOR THE RESPONDENT. 495 

form. The note, bond, or account even, may be evidence 
of a debt, but it is not the debt itself. The specific money 
when loaned, and received by the borrower, is no longer 
the property of the creditor. It is soon merged in the 
circulating mass, and the creditor can neither identify 
and claim it, nor put his hand upon any property pur- 
chased with it, and say that that is his. The money may 
be invested in real estate, or manufacturing, or merchan- 
dising, or speculation. It may prove a profitable invest- 
ment, or it may in a short time prove a total loss. It is 
all the same to the creditor so long as his debtor's ability 
to pay is unimpaired. He has simply a right to receive 
a given sum of money with interest or damages for its 
detention. It is a personal right, and accompanies the 
person of the creditor. The debtor is under a correspond- 
ing obligation to pay the demand. The right to receive is 
valuable, and through it an income is derived. That right 
may with propriety be taxed. The obligation to pay is 
a burden, and has never, to our knowledge, been the sub- 
ject of taxation. It seems, therefore, that the appropriate 
place to tax money at interest is where the creditor re- 
sides, and that for that purpose it may with propriety 
be said to be located with the creditor." * 

The respondent attached much importance to the 
analogy " between a money demand, evidenced by a note 
or bond, and shares of stock in a corporation " ; and to 
the fact that the United States Supreme Court had de- 
cided that " shares of stock in national banks are property, 
separate and distinct from the property of the corpora- 
tions which they represent, and are taxable" (National 
Bank vs. Commonwealth, 9 Wall., 353). 

Reference was also made to the case of Minot vs. The 
Philadelphia, Wilmington & Baltimore Railroad Company, 
in which the United States Supreme Court was held to 
have recognised a distinction between shares of railroad 
stock and the capital (property) of a corporation, and 
in respect to which it was assumed that the court main- 
tained that the share of a stockholder is something dif- 



* Reference in this connection is made to the opinions on this 
general subject expressed by the Supreme Court of California, 
given in the preceding chapter. 



496 THE THEORY AND PRACTICE OP TAXATION. 

ferent from the capital stock of a company; the latter 
being the property of the company only, while the former 
is the individual interest of the stockholder, constituting 
his right to a proportional part of the dividends when 
declared and to a proportional part of the effects of the 
corporation when dissolved after payment of its debts. 
Regarded in that aspect, it was held to be an interest or 
right which accompanies the person of the owner and hav- 
ing no locality independent of its domicile. 

But whether, when thus regarded, it can be treated as 
so far separable from the property to which it relates as 
to be taxable independent of the locality of the latter, 
was a question which the counsel of the State did not hold 
to be decided ; but there was a strong intimation that the 
United States Court intended to decide that shares of 
railroad stock can only be taxed in the State where the 
owner resides. 

Case for the Petitioners. — On the other hand, the 
following is a summary of the arguments and reasons ad- 
vanced (mainly by one of the most learned and distin- 
guished members of the Court of Errors of the State, and 
of the American bar, Hon. L. F. S. Foster, formerly presi- 
dent of the United States Senate and acting Vice-Presi- 
dent of the United States), in support of the petition 
for an injunction in restraint of the collection of a tax 
upon the plaintiff: 

" Taxation and protection are correlative terms. Pro- 
tection to the person is the ground on which the right to 
tax the person rests. Protection to the business, pro- 
tection to that portion of the property not taken by the tax, 
is the consideration or compensation for all legitimate tax- 
ation on business or on property. The person must be 
domiciled within the State to be subject to a personal or 
poll tax ; the business or the property must also be within 
the territory of the State to confer jurisdiction over them. 
That the person of the plaintiff is within the jurisdiction, 
and subject therefore to the taxing power, is apparent 
from the record. This tax, however, is not imposed on 
the person; it is imposed on the property of the plaintiff, 
and as such it must be sustained, if sustained at all. The 
case does not require any description of the various 
species of property, real, personal, etc. Real property has, 



CASE FOR THE PETITIONERS. 497 

of course, an immovable situs, and can never be subject 
to any taxation except that imposed by the government 
within whose jurisdiction it is situate. The reason is, 
that that government is the only one that can afford it 
protection. Personal property, of whatever it may con- 
sist, though capable of being transported from place to 
place, if it be of a visible and tangible kind, would seem, 
in the nature of things, to follow the same rule and for 
the same reason — that is, to be subject to taxation by the 
State within whose jurisdiction it is situate, as that State 
only has dominion over it, and as that State only can 
afford it protection. 

" Now, if the property in question be considered real 
property, it being in the State of Illinois, any tax upon 
it by Connecticut would be extra-territorial and void. If 
it be considered personal property, of a visible and tan- 
gible character, it is still in the State of Illinois, and so 
just as much out of the dominion and beyond the juris- 
diction of the State of Connecticut as though it were 
real property. If we consider the property to be an in- 
terest in real or personal property, or a title, inchoate, 
equitable, or legal, to such property in Illinois, such in- 
terest, or such title, is no legitimate subject of taxation 
in Connecticut. The corpus and situs of this property 
being in Illinois, and subject, of course, to taxation there 
because within her jurisdiction, no interest in it, no title 
to it, can be taxable in Connecticut. Such a claim involves 
one of two absurdities : either that the same property may 
be in two places at the same time, or that two independent 
governments can have jurisdiction over the same subject- 
matter at one and the same time. 

" But the property of the plaintiff on which this tax 
has been imposed is not real property, nor is it personal, 
of the character here considered. It may be well to de- 
scribe it precisely, that there may be no room for misun- 
derstanding. 

" The plaintiff loaned money in the city of Chicago, in 
the State of Illinois, on bonds conditioned for its repay- 
ment, and secured by deeds of trust. One of said bonds, 
and one of said deeds, as a specimen of all, is made part 
of the record. This bond declares ( that it is made under, 
and is in all respects to be construed, by the laws of the 



498 THE THEORY AND PRACTICE OF TAXATION. 

State of Illinois, and is given for an actual loan of money 
[$3,000] made at Chicago, by Charles W. Kirtland [the 
plaintiff], to Edmund A. Cummings [the obligor] on the 
day of the date hereof ' [July 17, 1869]. The deed of the 
same date is a conveyance in fee, by Cummings and his 
wife, of a lot of land in Chicago, to Norman C. Perkins, 
of said city, to be held by him in trust, as security for the 
payment of said loan, with power to sell and convey the 
same, and apply the proceeds in payment of the loan, in 
case of default on the part of said Cummings to perform 
the stipulations of said bond. It is quite obvious that 
Cummings has incurred a debt to Kirtland, and that 
Kirtland has a claim against Cummings. Cummings is 
the debtor, Kirtland the creditor. Has this debt a situs? 
If it has, where is it ? In Illinois, or in Connecticut ? The 
contract to loan was made in Illinois, there the creditor 
parted with his money, there is the property pledged for its 
repayment, there the debtor is domiciled, there the trustee. 

" This seems to indicate Illinois as the situs of this 
debt. So far as it is a thing having a substantial exist- 
ence, it is there, and not elsewhere. The Connecticut 
statute provides in terms, 'that money secured by mort- 
gages upon real estate in this State shall be set in the 
list and taxed only in the town where said real estate is 
situated/ This manifestly recognises the situs of the 
property pledged as security for a debt, as the situs of the 
debt. But a debt has no situs. Only a material thing 
can have a corpus, and only a corpus can have a situs, for 
it is the location of the corpus that constitutes a situs. 
A debt is neither visible, tangible, nor ponderable; it has 
no situs, no corpus. It is a misnomer to call it property. 
In legal phrase it is but a chose in action, a jus incorporate. 
It is an equitable title in the property of the debtor, and 
it adheres, as a title, in the property it represents. It 
does not follow the person of the owner in his domicile, 
though he may transfer it there. 

" These views are fully sustained by the United States 
Supreme Court, in the case of Brown vs. Kennedy, 15 
Wall., 591.* 



* In this ease, which covered a proceeding under the confiscation 
act of 1862, the United States Court rejected the theory that a 



SITUS OF A DEBT. 

"The same court also held to similar conclusions in 
a number of other cases. Thus, in the case of Pelham 
vs. Rose, 9 Wall., 103, a note, the evidence of the credit, 
not the credit itself, was the thing proceeded against. In 
the case of Pelham vs. Way, 15 Wall., 196, where the court 
also held that the proceedings, not having been against 
either the debt or credit, but only against the material 
evidence of it, and that material evidence having been 
out of the marshal's jurisdiction, no confiscation had been 
effected. 

"Now, if these decisions/' said Judge Foster to his 
colleagues in the Court of Errors, " are to be recognised 
as law, how can it be claimed that on this credit, given by 
Kirtland to Cummings in the State of Illinois, secured by a 
deed of real estate there situate, held by a trustee resi- 
dent there, the debtor being domiciled there, the debt made 
payable there, the laws of Illinois by express agreement 
to govern the contract; how (for the question bears re- 
peating) can it be claimed that there is any subject-matter 
within the jurisdiction of Connecticut on which to impose 
a tax? 

credit has a legal situs where the owner resides, and held that 
a bond and mortgage form of credit could be confiscated by the 
United States where the mortgage debtor resided, though, in point 
of fact, the bond and mortgage were never in the State of Kansas 
where the proceedings in forfeiture took place, and were, in fact, 
in possession of the owner, in the rebel lines, in the State of 
Virginia. The court accordingly passed a decree, and ordered that 
the said bond, mortgage, and credit be condemned and declared 
forfeited to the United States. The decree also ordered Kennedy, 
one of the obligors and mortgagors, to pay the debt into the court, 
for the use of the United States; and in pursuance of the decree 
the payment was made to the officers of the court. After the 
termination of the war, or in 1868, Brown, the obligee and mort- 
gagee in this bond and mortgage, having obtained a pardon from 
the President of the United States, filed a bill in the United States 
Circuit Court for the district of Kansas against Kennedy and 
wife, for the foreclosure of this mortgage. The principal defence 
was, that the mortgage and the debt secured by it had been confis- 
cated under the act of Congress. That, of course, put in issue the 
validity of those proceedings. It was admitted as matter of fact 
and agreed, that Brown, the complainant, was and always had been 
a resident of Virginia, had been a continuous resident of the State 
from June, 1860, to September, 1865, and neither the bond nor 
mortgage in question was during any part of that time in the dis- 
trict of Kansas. 



500 THE THEORY AND PRACTICE OF TAXATION. 

" That the land in Illinois which is the security for this 
debt, and of which this debt is the representative, has 
borne its full share of taxes without diminution on ac- 
count of this debt is not denied. If the land were in Con- 
necticut, this would suffice; no tax could be collected on 
the debt. That the land is in Illinois can not affect the 
principle. If each State has dominion over the property, 
real and personal, within its territory for the purposes of 
taxation — and he must be a bold man who denies it — 
that dominion must, from its nature, be exclusive. No 
other State can have concurrent jurisdiction. Nor does 
any other State become invested with the power to tax, 
if the State in which the power is vested omits to exercise 
that power. Should a State exempt the property, real or 
personal, within its limits, belonging to non-residents, 
from taxation, by what authority could any foreign State 
impose taxes on such property? The question is purely 
jurisdictional, and the matter of double taxation is not 
involved. The point is not whether the State may tax a 
thing twice, but whether there is anything within its juris- 
diction that it can tax at all. 

" Resort must be had to a legal fiction to draw this 
debt into Connecticut. It does not appear from the record 
that even the evidences of the debt, the bond and deed, 
were held in Connecticut." 

Under such circumstances, it is curious to note, as 
Judge Foster especially pointed out, to what a singular 
and absurd hypothesis and procedure the Connecticut au- 
thorities, as if conscious that they had abandoned reason 
and were dealing with sentiment, had recourse in order 
to get a basis and a warrant for their action. They first 
assumed that there was an imaginary property, separate 
and distinct from the material property; and then gave 
to such imaginary property an imaginary siius, thus 
" going far into the domain of the sentimental and spirit- 
ual for the purpose of taxation." Bishop Berkeley, it will 
be remembered, held to the opinion that matter does not 
exist, and that we only imagine that it exists ; but it is 
not at all probable that he ever hoped, when alive, that 
his views would be so practically indorsed, and at so early 
a day, in the State of his literary adoption. He would 
have made, moreover, a desirable tax assessor and tax 



CONSTITUTIONAL QUESTION. 501 

collector under the present Connecticut tax laws ; for being 
logical, even if he was sentimental, he would doubtless 
have been willing to take the taxes in the pure product of 
the imagination. His successors, however, were not only 
sentimental but illogical; for, not content with assuming 
that the imaginary is the real, they tried to do what the 
good bishop never would have sanctioned — namely, take 
something out of nothing. 

But apart from these curious and novel politico-eco- 
nomic and legal features, this Kirtland case involves con- 
stitutional questions of the highest interest and impor- 
tance^ — as much so, perhaps, as any case ever brought to 
judicial arbitrament since the formation of the Federal 
Constitution. 

The power of the State to tax the business of loaning 
money, like the power to tax any business transacted 
within its limits, by way of license or otherwise, whether 
the money be loaned to parties within or without the 
State, is unquestionable. 

But this, however, can not be exercised by a State when 
the business is done without the State, though it be done 
by citizens of the State. Citizens of Connecticut transact- 
ing business in Illinois must, therefore, be subject to the 
laws of Illinois, and not to the laws of Connecticut. 
Again, if each State of the Federal Union has dominion 
over the property and business transacted within its ter- 
ritory for the purpose of taxation, that dominion must 
from its very nature be absolute and exclude the dominion 
of any other State over the same property and business. 
Again, the sovereignty of coequal States involves a full 
recognition of the dominion and sovereignty of all sister 
States; and hence section 1, Article IV, of the Federal 
Constitution requires that " full faith and credit shall 
be given to the public acts, records, and judicial proceed- 
ings of other States." Each State, then, in entering the 
Federal Union, entered into a contract of non-interfer- 
ence with the dominion and prerogatives of other States ; 
and it will not be disputed that the power of taxation 
is an incident of sovereignty or dominion. The dominion, 
therefore, of one State for the purpose of taxation over 
persons, property, business, or the incidents of business, 
must exclude the dominion of other States over the same 



502 THE THEORY AND PRACTICE OF TAXATION. 

persons, property, business, and incidents of business at 
the same time. Neither in constitutional law in the 
United States nor in mathematics can the same property, 
persons, business, or incidents of business occupy two 
places and two sovereignties at the same time. Hence, 
the taxation by Connecticut of credits, choses in action, 
bonds, notes, book accounts, verbal and other contracts, 
the incidents of actual business transacted in Illinois, must 
be in legal effect extra-territorial taxation of such business, 
and so an infringement and violation of the sovereignty 
of Illinois; or else it must be assumed that business does 
not include its incidents, or the whole its parts. 

Furthermore, if Connecticut has the power of taxing 
extra-territorial contracts for the loan of money, she 
has the power to fix any rate and to discriminate as to 
the States upon whose citizens the burden shall fall; or 
she may adopt a rate that shall be prohibitory on con- 
tracts made by her citizens with citizens of designated 
States, or citizens of all the States, as her caprice may 
dictate. 

And in this way she may obstruct and to a great ex- 
tent prevent interstate commerce, which the United States 
Supreme Court in repeated instances (since the Kirtland 
case) has decided that the separate State governments can 
not under the Federal Constitution do either directly or 
indirectly. 

From these considerations, reasoning, and precedents 
the conclusions of Judge Foster would seem to have been 
incontrovertible — namely, that "the plaintiff," Kirtland, 
" was not liable to taxation " in Connecticut " for debts 
owing to him in Illinois " ; and inferentially that, al- 
though possibly warranted by the letter of the statute, 
the act was an attempt on the part of Connecticut to 
exercise extra-territorial dominion over persons, contracts, 
or business, and was, therefore, unconstitutional and void. 
It would also seem to be clear that if property in action 
(choses in action) is made by fiction of law an entity, hav- 
ing a situs in one State separate from the property which 
it represents in another State, an opportunity for the 
grossest inconsistencies will be perpetrated, and the most 
inharmonious, arbitrary, and capricious tax laws and 
other laws will be enforced by conflicting legislation of 



FINAL DECISION. 503 

States, required by constitutional obligations to " give 
full faith and credit to the public acts of other States." 

The Connecticut Court of Errors, however, dissolved 
the injunction and dismissed the petition, Judge Foster 
alone out of a full bench of five dissenting. An appeal 
being next taken to the United States Supreme Court, the 
latter (in 1879) affirmed the judgment of the Connecticut 
court, the essential points of the opinion rendered by 
Mr. Justice Harlan being as follows : " The debt which the 
plaintiff, a citizen of Connecticut, holds against the resi- 
dent of Illinois is property in his hands. The debt, then, 
having its situs at the creditor's residence, and constitut- 
ing a portion of his estate there, both he and the debt are, 
for purposes of taxation, within the jurisdiction of the 
State. It is, consequently, for the State to determine, 
consistently with its own fundamental law, whether such 
property owned by one of its residents shall contribute, 
by way of taxation, to maintain its government. Its dis- 
cretion in that regard is beyond the power of the Federal 
Government to supervise or control, for the reason that 
such taxation violates no provision of the Federal Consti- 
tution; as manifestly it does not, as supposed by counsel, 
interfere in any true sense with the exercise by Congress 
of the power to regulate commerce among the several 
States; nor does it, as is further supposed, abridge the 
privileges or immunities of citizens of the United States, 
or deprive the citizen of property without due process of 
law, or violate the constitutional guaranty that the citi- 
zens of each State shall be entitled to all the privileges 
of citizens in the several States. 

" Whether the State of Connecticut shall measure the 
contribution which persons resident within its jurisdiction 
shall make by way of taxes in return for the protection 
it affords them, by the value of the credits, choses in 
action, bonds or stocks which they may own (other than 
such as are exempted or protected from taxation under 
the Constitution and laws of the United States) is a 
matter which concerns only the people of that State, and 
with which the Federal Government can not rightfully 
interfere." * 

* 100 U. S., p. 499. 



504: THE THEORY AND PRACTICE OF TAXATION. 

It remains but to indicate the legitimate deductions 
and consequences of this decision, and point out some of 
the circumstances pertinent to the treatment of the case 
when it was before the United States Court. 

In the first place, it decided that debts are property; 
a legitimate deduction from which is that the creation of 
debts creates property, and the extinguishment or payment 
of debts annihilates property; a conclusion which has not 
received the sanction of the judiciary, or found a place in 
the tax system of any country other than the United 
States. Second, the decision next gave a miraculous power 
to residence, by making it capable of producing property 
out of nothing. Third, it sanctioned the right of a State 
to subject its citizens to double taxation in respect to one 
and the same property, and indorsed the justice and moral- 
ity of the act. If the situs of the property — in the sense 
of an actuality — and the owner of a mortgage upon it, 
are within the territory of one and the same State, and the 
actuality is fully taxed by it, the separate and duplicate 
taxation of the mortgage would not be sanctioned except 
at the demand of the debtor, and which, as equivalent to 
his asking that the burden of his debt be augmented, he 
would be not likely to make. But when the actuality and 
the mortgage are in different States of one and the same 
nation, as was the situation in the Kirtland case, a differ- 
ent rule is held to prevail, whereby that which in one State 
was regarded as an incident of property, and as such prop- 
erly exempt from taxation, becomes by mere transference 
to another State actual property, and as rightfully subject 
to taxation. 

Fourth. If debts are property, and rightful subjects 
for taxation, the sphere of the application of this principle 
should not be restricted to debts created by a mortgage, 
but should embrace every form of indebtedness created by 
the loan of capital — as promissory notes, book credits, 
and policies of life insurance — which are valuable to just 
the extent that they represent the indebtedness of the com- 
pany issuing them to the holder of the policy. But if all 
the forty-five States of the Federal Union or the differ- 
ent countries of the rest of the world were to undertake 
to pursue capital in the form of debts due their respective 
citizens for the purpose of taxation, the resulting inex- 



CONSEQUENCES OF THE DECISION. 505 

tricable and disastrous confusion would be almost beyond 
the power of imagination. 

Fifth. The United States Supreme Court held that 
there was nothing in the form of taxation involved in this 
case that interfered with the power of the Federal Gov- 
ernment to regulate interstate commerce; but if, as was 
further held, there was no constitutional limitation on 
the exercise of the power of taxation by the State of Con- 
necticut, and that the Federal Government can not right- 
fully interfere with the measure of taxes that a State may 
impose on credits and choses in action that its citizens 
may own, it is difficult to see why Connecticut might not 
impose such taxes on all extra-territorial contracts of 
pecuniary value as would greatly impair or altogether 
prevent the commercial intercourse of her citizens with 
the citizens of other States. Finally, nothing more clearly 
exhibits the anomalous issues involved in this case than 
the fact that it could not have come up before any of the 
courts of England, France, Belgium, Germany, Switzer- 
land, Italy, or Lower Canada; for in none of these coun- 
tries are debts regarded in the light of property, subject 
to taxation. 

The following facts pertinent to the history of this 
case are also worthy of record : When the appeal from the 
decision of the Connecticut Court of Errors was made 
to the United States Supreme Court, one of the most dis- 
tinguished members of the bar of the State of New York, 
who in repeated instances had commanded the respect 
and attention of the former court, was moved, through 
his abstract interest in the legal and economic principles 
involved in the case, to volunteer his services for its future 
argument and presentation to this high and final tribunal. 
But on the day assigned for its hearing, serious illness 
prevented his attendance on the court, and the case in 
question went before it practically without verbal argu- 
ment, and mainly on the presentation of a brief. Some 
years after the decision was rendered, the then chief jus- 
tice of the court (the late Morrison E. Waite) told the 
writer, in a familiar interview, that he had no recollection 
of the case, and expressed much interest in a presentation 
of the economic points involved in it. 

Another fact especially worthy of the consideration of 
33 



506 THE THEORY AND PRACTICE OF TAXATION. 

those who have been instrumental in enacting and defend- 
ing statutes in respect to taxation in the "United States 
which find no justification in economic principles, or any 
parallel in the laws or fiscal systems of other countries 
of high civilization, is, that since the final decision in the 
Kirtland case, the State of Connecticut, where it origi- 
nated, has derived no material advantage from it. Nay 
more, a somewhat extensive inquiry made of its tax offi- 
cials renders it doubtful if a single extra-territorial mort- 
gage has since been made subject to taxation as property 
in the form of a debt in the State of Connecticut. And 
the same is generally believed to be true of a vast number 
of mortgages of real estate — especially of farming lands 
of the Western States of the Federal Union — which in 
recent years have been negotiated and sold by the large 
number of the so-called " loan and trust companies " in 
the Eastern States. The fact is, the American people, 
whose interests have called their attention to this form 
of taxation, regard it as unequal and unjust, and so clearly 
in the nature of double taxation on one and the same per- 
son and property, and an exaction, that evasion of it is 
clearly warranted; the whole record of experience under 
it constituting another demonstration of the fact that 
under a popular form of government any law regarded 
as unjust or unnecessary can not be efficiently executed; 
and to avoid the necessity of evasion it has now become 
almost the universal practice, in executing mortgages in 
the United States, that if the mortgage is made subject 
to taxation the mortgagee shall pay the taxes in addition 
to the interest on the loan of capital represented by the 
mortgage. 

Note. — In addition to what may be termed the historical ele- 
ments of this celebrated case, the more strictly legal features of it, 
as set forth subsequent to the action of the United States Supreme 
Court, are here pertinent and worthy of consideration: 

No. 1. This case seems from its very nature to involve questions 
of conflict of State dominion. It is admitted that Mr. Kirtland, the 
plaintiff, so far as the question of taxation at issue is concerned, 
has not been assessed and taxed upon his body, person, poll, or 
head, or for any substance, the embodiment of labour, and which 
alone constitutes property, owned or possessed by him within the 
territory of Connecticut; nor for any business transacted by him 
within the State. The plaintiff has, however, been assessed and 
taxed for dealing in money or doing the business of loaning money, 



LEGAL FEATURES OF THE CASE. 507 

by an assessment and taxation of bonds and mortgages made in 
Illinois — the necessary incidents and evidence of the business of 
money lending, performed by himself or through a resident agent 
in the State of Illinois. It is conceded that the loans were actually 
made at Chicago in the State of Illinois, as the bonds and mort- 
gages taken state that all the business and acts connected with the 
loaning arid reloaning were actually done, from time to time, there, 
that the obligations were payable there, and that the contracts 
of loan were strictly Illinois contracts, to be interpreted as valid 
or invalid and as to their force and effect according to the laws 
of that State. 

The State of Illinois imposes a tax on resident agents making 
loans in that State; but it is not important to inquire whether 
in this instance the business of loaning was done through a resi- 
dent agent or what that State does actually tax, but what she 
can constitutionally tax by virtue of her dominion and sover- 
eignty. Illinois can undoubtedly tax, if the tax is not discrimi- 
nating but uniform on residents and non-residents, all occupa- 
tions and also all business transacted within her borders. She 
can tax money dealers or money lenders by license or otherwise, 
and she can impose stamp or other taxes and to any degree, in her 
discretion, on all contracts at the time when made within her juris- 
diction. No other State has concurrent jurisdiction over any legiti- 
mate subject of taxation within her jurisdiction. Her sovereignty 
in taxation is absolute except as limited by the national Constitu- 
tion. But the sovereignty of coequal States involves a full recogni- 
tion of the dominion and sovereignty of all sister States, and hence 
section 1, Article IV, of the United States Constitution requires that 
" full faith and credit shall be given to the public acts, records, and 
judicial proceedings of other States." This is a compact of non- 
interference in the dominion of other States in matters of taxa- 
tion or in reference to other subjects of State dominion. The power 
of taxation is an incident of sovereignty or of dominion. The 
dominion, therefore, of one State for the purpose of taxation over 
persons, property, or business, or the incidents of business, must 
exclude the dominion of other States over the same persons, prop- 
erty, business, and incidents of business at the same time. Neither 
in constitutional law in this country nor in mathematics can the 
same persons, property, business, and incidents of business occupy 
two places or sovereignties at the same time. The taxation by Con- 
necticut of credits, choses in action, bonds, notes, book accounts, 
verbal and other contracts, the incidents of actual business trans- 
acted in Illinois, must be in legal effect extra-territorial taxation 
of a part of such business, or otherwise it must be assumed that 
the incident is not a part of the principal. The making of con- 
tracts is of itself a business in the strictest sense, nor can any 
business exist without the power to make contracts written or 
verbal. Money can not be loaned unless there is a business of 
lending money, and for the time being the vocation of a money 
lender. The amount or duration of a business in a State can 
have no influence on the question of the jurisdiction of the State 
over the business or the transaction. A State can tax all sales 
at auction, including the sales of goods in unbroken packages 



508 THE THEORY AND PRACTICE OF TAXATION. 

owned by nonresidents and just brought into the State and sold 
by nonresidents or by resident agents (Woodruff vs. Perham, 8 
Wallace, 123). In New York mere wandering peddlers are taxable 
on money invested in business in every town in which they peddle. 
If actually assessed in more than one town the same year the 
remedy is to appeal to the assessors (Hill vs. Crosby, 26 Howard, 
par. 413). It would seem that business, occasional, transient, or 
permanent, transacted in a State by a resident or nonresident, by 
the force of State sovereignty, may be made subject to a uniform 
rule of taxation. 

Extraterritorial taxation can have no force in American juris- 
prudence. Protection and taxation are correlative terms. Protec- 
tion to that portion of property not taken or absorbed by the 
tax is the consideration or compensation for all legitimate taxa- 
tion, and extraterritorial taxation is therefore a mere arbitrary 
" taking of private property without due process of law." When 
property is not protected by the law of a country or of a State 
and beyond the process of its courts, there can be no power to 
tax it (this principle is manifestly as applicable to business as to 
property — Rice vs. The United States, 4 Wheaton, 246). In the for- 
eign-held bond case, 15 Wallace 319, the United States Supreme 
Court said that " property lying beyond the jurisdiction of the 
State is not a subject upon which her taxing power can be legiti- 
mately exercised. Indeed, it would seem that no adjudication 
should be necessary to establish so obvious a proposition. The 
power of taxation, however vast in its character and. searching in 
its extent, is necessarily limited to subjects within the jurisdic- 
tion of the State. These subjects are persons, property, and 
business." 

These admitted facts and the opinions cited indicate that Con- 
necticut is endeavouring in this case to enforce an extraterritorial 
tax on extraterritorial business, and a further consideration of the 
subject might here be dismissed, but a more detailed examination 
may show more clearly the unconstitutionality of this arbitrary 
exaction. 

Effect of the Fourteenth Amendment of the 
Constitution of the United States in Eespect to 
the Arbitrary Appropriation of Property by Taxa- 
tion or Otherwise. — Another point preliminary to re- 
form, and in respect to which it is important that there 
should be a clear understanding on the part of the people, 
is that there is a broad and philosophical distinction be- 
tween " taxation " and " arbitrary " taking. It is often 
assumed that a State, because of its sovereignty, may, 
through form of law and delegated authority, deal with 
the persons and property of its subjects as it may see 
fit ; and, repugnant as this assumption is to the principles 
which are assumed to constitute the foundation of all free 



THE FOURTEENTH AMENDMENT. 509 

government, it is not to be denied that previous to the 
adoption of the fourteenth amendment of the Constitu- 
tion of the United States in 1868, it would be difficult to 
show that restraint existed upon the complete sovereignty 
of the States of the Federal Union over persons and prop- 
erty within their unquestioned jurisdiction; the right to 
hold a certain class of their population in slavery, and the 
right to take private property for public purposes without 
making any compensation, being illustrative of the exercise 
of such arbitrary powers in the utmost extreme. But since 
the decision of the United States Court in the Kirtland 
case, the same court has for the first time given a decided 
opinion on this subject, unmistakably as follows : " There 
is no such thing in the theory of our Government — State 
or national — as unlimited power in any of these branches. 
The executive, the legislative, and the judicial depart- 
ments are all of limited and defined powers. There are 
limitations of power which arise out of the essential 
nature of all free governments, implied reservations of 
individual rights, without which the social compact could 
not exist, and which are respected by all free governments 
entitled to the name. Among these is the limitation of 
the right of taxation " (Loan Association vs. Topeka, 
20 Wallace, 658). 

In connection with this general subject, the opinion 
expressed by Chief-Justice Marshall is also historically 
worthy of notice. It had its origin in the case of Baron 
vs. The Mayor of Baltimore, in which the city of Balti- 
more, in the exercise of its corporate authority over the 
harbour, etc., so diverted certain streams of water that 
they made deposits of sand and gravel near the plaintiff's 
wharf, and thereby prevented the access of vessels to it. 
A writ of error was taken from the judgment of the Mary- 
land Court of Appeals, refusing damages, to the Supreme 
Court of the United States, on the ground that this de- 
cision was in violation of the fifth amendment to the 
Constitution of the United States, which prohibits the 
taking of public property for private use without just 
compensation; the plaintiff contending further, "that 
this amendment, being in favour of the liberty of the citi- 
zens, ought to be so construed as to restrain the legisla- 
tive power of a State, as well as that of the United States." 



510 THE THEORY AND PRACTICE OP TAXATION. 

The court, however, by Chief-Justice Marshall, held that 
this amendment of the Constitution " is intended solely 
as a limitation on the exercise of power by the Government 
of the United States, and is not applicable to the legisla- 
tion of the States " ; which was equivalent to saying, viz., 
that if the several States choose to arbitrarily take or con- 
fiscate the property of any of its citizens, there was no 
higher sovereignty to restrain them. 

At the close of the late civil war, however, when it was 
deemed desirable by Congress to impose some restrictions 
on the reconstructed States, so as to prevent the former 
disloyal element of their population, in the event of the 
contingency of regaining legislative power, from deal- 
ing arbitrarily or unjustly with any class of their fellow- 
citizens who might happen to be obnoxious, the following 
clause was made a part of the fourteenth amendment, and 
through its adoption has become the supreme law of the 
land: "Nor shall any State deprive any person of life, 
liberty, or property without due process of law" 

Now, the force of this amendment obviously depends 
upon the meaning of the last clause, " due process of 
law " ; and it is also clear that " due process of law " does 
not mean a procedure in conformity with any law which 
a State Legislature might enact, or with any provision 
which the people of a State might put in their Constitu- 
tion ; for if such be the interpretation of this phrase, then 
this clause of the fourteenth amendment referred to would 
practically read as follows : " Nor shall any State deprive 
any person of life, liberty, or property, except in conform- 
ity with such laws as it may enact." 

The general meaning of the phrase " due process of 
law," and of the synonymous expression " law of the 
land," has, however, been made so often the subject of 
discussion and legal decision as to be in no sense a matter 
of doubt. Mr. Webster, in the Dartmouth College case, 
defined these terms as follows : " By the law of the land 
is most clearly intended the general law, which hears be- 
fore it condemns, which proceeds upon inquiry, and 
renders judgment only after trial. The meaning is that 
every citizen shall hold his life, liberty, property, and 
immunities under the protection of the general rules 
which govern society. Everything which may pass under 



DUE PROCESS OF LAW. 511 

the form of an enactment is not the law of the land." 
And in commenting on this definition, Justice Cooley, 
in his treatise on Constitutional Limitations, uses this 
language : " This definition of Mr. Webster is apt and 
suitable as applied to judicial proceedings, which can not 
be valid unless they proceed upon inquiry, and render 
judgment only after trial. It is entirely correct, also, in 
assuming that a legislative enactment is not necessarily 
the law of the land. The words ( by the law of the land,' 
as used in the Constitution, do not mean a statute passed 
for the purpose of working wrong. That construction 
would render the restriction absolutely nugatory, and turn 
this part of the Constitution into mere nonsense. Due 
process of law," therefore, continues Judge Cooley, after 
reviewing the interpretations of various other authorities, 
means " such an exertion of the powers of the Govern- 
ment as the settled maxims of law sanction, and under 
such safeguards for the protection of individual rights 
as these maxims prescribe." 

" The very idea of taxation, the very elements of the 
terms tax — taxation — implies that it is an imposition or 
levy upon persons or property in due course or order, treat- 
ing all alike in the same condition and circumstances. 
The burden of taxation must be equalized by this mode 
in order to preserve its character. It is in any view tak- 
ing private property for public use; and it can not be so 
taken without an equivalent both as to the Government 
or the citizens. It is not competent for the Government 
to convert private property to public use, by way of taxa- 
tion and without compensation, any more than by any 
other mode." — Redfield. 

Now, the exact applicability of the fourteenth amend- 
ment in restraining the several States in the exercise of 
their so-called " taxing powers " would appear to be this : 

Taxation implies protection. It is held by every au- 
thority to be the equivalent for the protection which the 
Government affords to the property of its citizens. When, 
therefore, a State (like Connecticut) taxes property, 
either directly or indirectly, out of its territory and juris- 
diction, which it can not protect, and which its processes 
can not reach, the act is not taxation, but a mere arbitrary 
exercise of power ; not in accordance with any " process 



512 THE THEORY AND PRACTICE OP TAXATION. 

of law," and forbidden by the Constitution of the United 
States, and as involving a principle under the Constitu- 
tion. Furthermore, the question of restraining a State 
from the exercise of such arbitrary powers would seem 
to be one legally within the right of any citizen aggrieved, 
in virtue of the fourteenth amendment, to carry from the 
courts of his own State to the Supreme Court of the 
United States. As another method by which a citizen of 
a State aggrieved by the imposition of an ex-territorial 
tax might test the constitutionality of the same, the fol- 
lowing is also worthy of consideration : 

A citizen of Connecticut, for example, taxed on per- 
sonal property in Illinois, might obtain a writ of certiorari 
in an Illinois court, and raise the question that, inasmuch 
as personal property is held in law to follow the person, 
the property in question was not taxable in Illinois. And 
after the courts of Illinois had rendered an adverse judg- 
ment, as they undoubtedly would, the owner taxed for the 
same property in Massachusetts could obtain a writ of 
certiorari in the courts of that State, and raise the fol- 
lowing questions : 

1. Want of jurisdiction in respect to the property on 
the part of the State of Massachusetts. 

2. Violation of the Constitution of the United States 
in denying full faith and credit to the " public acts (tax 
laws of Illinois ) and judicial proceedings " of a sister 
State. 

It needs no argument to prove that under the provi- 
sions of the Constitution of the United States, above re- 
ferred to, both the laws and judicial proceedings of one 
State are as valid and as much to be respected in another 
State as the laws and judicial proceedings of the latter 
State itself. If the courts of Massachusetts, following 
precedents in that State, should decide that personal prop- 
erty situated beyond the State follows the person residing 
in Massachusetts, and so disregards the judicial proceed- 
ings and public acts of Illinois, a question under the Con- 
stitution of the United States would arise, which would 
give jurisdiction in the United States Court. And as one 
and the same thing can not occupy two places at the same 
time, the Federal court must finally decide in which State 
is the situs of the property for taxation in the case pre- 






APPLICATION OP THE RULE. 513 

sented. The principle involved in this case would seem 
to be identical with an attempt on the part of a State 
to convict a citizen for an offence committed beyond her 
jurisdiction, in respect to which judgment had already 
been rendered in a sister State, where the offence had been 
committed. 

As further bearing upon this subject, reference is made 
to the following judicial decisions : The Court of Errors 
of New York, some years ago, decided that private prop- 
erty could not be forcibly taken for a private road, even if 
compensation was made by the party benefited, because 
the act was the taking property arbitrarily, and not ac- 
cording to due process of law. 

The national bank act acknowledges, and the courts of 
the United States have so held, that a bank has a situs 
and its shares a situs where the bank is located, and not 
where the stockholders reside. The national bank act, 
therefore, discards the usual State principle of taxation, 
that personal property follows the owner.* 

* See the case of Northern Central Railroad vs. Jackson, cited 
in Chapter XX, p. 448. 



CHAPTER XXIV. 

THEORY AND PRACTICE OF INCOME TAXATION". 

Commencing with first principles, the general taxa- 
tion of incomes is theoretically one of the most equitable, 
productive, and least exceptionable forms of taxation. 
What can be fairer than that each citizen should annually 
contribute an equitable and just portion of his net gain or 
income for the support of the government or State under 
which he has elected to live, and in default of which he 
would not be likely to have either gain, income, or prop- 
erty? and such a method of supporting a government 
would therefore seem to be in accord in the highest degree 
with those canons or maxims of taxation which are re- 
garded by nearly all economists and jurists as the highest 
embodiment of human wisdom on this subject. 

And yet the proposition is hardly open to dispute that 
a general income tax, with such administrative features 
as are essential to make it desirable as a revenue measure, 
can not be successfully administered under a free and 
popular form of government. On this point the com- 
paratively recent experience of the United States, which 
few now remember, ought to be most instructive. Thus, 
in 1869, under a Federal law assessing all incomes in ex- 
cess of $1,000, and with a corps of trained officials to exe- 
cute it, only 259,388 persons out of a population in that 
year of about 37,000,000 acknowledged the receipt of any 
taxable income; and in 1872, when the exemption had 
been raised to $2,000 and the population had increased 
to over 39,000,000. the number of persons who had an 
income tax ran down to 72,949 — leaving a presumption 
that every one of those who did not pay and was made sub- 
ject to inquisition by the officials in respect to his in- 
come, made oath that he was not in receipt, from wages, 
salary, interest, or profits, of an income liable to taxa- 
514 



OPPOSITION TO INCOME TAX. 515 

tion in excess of $2,000. From an economic point of view 
it would be a misnomer to call such a result " taxation " ; 
from a moral point of view its characterization as " ap- 
palling " would not be inappropriate. 

Another point which may also be accepted as theo- 
retically beyond dispute is, that if all were willing to live 
up to and carry out the correct and rational theory of an 
income tax, there would be little use for tariffs, custom- 
houses, internal-revenue departments, and excises. But 
that is exactly what human nature, as we find it, will not 
agree to have done in the one case, or to do in the other. 
In fact, there is hardly any other one thing which human 
nature so much dislikes to do as to pay taxes, although 
it is capable of demonstration, even to a most obtuse in- 
tellect, that there is no one act which can be performed by 
a community that brings in so large a return to the credit 
of civilization and general happiness as the judicious ex- 
penditure for public purposes o£ a fair percentage of the 
general wealth collected under an equitable system of tax- 
ation. 

Now, an income tax is the very essence of personal 
taxation, and although in respect to a specialty of appli- 
cation it has been decided by the Supreme Court of the 
United States not to be a direct tax, it comes to the ordi- 
nal taxpayer most directly; and this is the first or one 
of the most influential reasons why it is not liked. The 
world's experience is to the same effect in respect to a 
" poll " or " head " tax. This in a popular sense is almost 
universally regarded as a direct tax, and altogether per- 
sonal in its incidence. It has accordingly always been 
most unpopular. Its collection has been the occasion of 
great civil disturbances in the world's history, and it has 
been denied a place by popular vote or constitutional provi- 
sion, in the tax system of most of the States of the Fed- 
eral Union. 

A second and more important reason why a general 
income tax powerfully antagonizes popular sentiment is 
that its efficient administration, or revenue productiveness, 
requires that every person liable to taxation in respect to 
his annual net gains, profits, or income shall make to a 
Government official an exhibit of the financial condition 
of his estate, business, or profession; for, in default of 



516 THE THEORY AND PRACTICE OF TAXATION. 

such an exhibit, any basis for assessment must be a mere 
matter of conjecture on the part of the assessor, with a 
result devoid of any pretence to correctness or equality. 
But such an exhibit, necessarily disclosing to a greater 
or less degree his financial condition to his business com- 
petitors, and to a curious, gossiping public, no man will 
willingly make; and he naturally regards it as in the 
nature of an outrage on the part of the government that 
seeks to compel him to do it. Hence the successful ad- 
ministration of an income tax involves and requires the 
use of arbitrary and inquisitorial methods and agencies, 
which, perfectly consistent with a despotism, are entirely 
antagonistic to and incompatible with the principles and 
maintenance of a free government. 

Practically, as John Stuart Mill has expressed it, " the 
fairness which belongs to the principle of an income tax 
can not be made to attach to it in practice " ; and, " while 
apparently the most just of all modes of taxation, it is 
in effect more unjust that many others that are prima 
facie more objectionable." And again he says, " The tax, 
on whatever principles of equality it may be imposed, is 
in practice unequal in one of the worst ways, falling heav- 
iest on the most conscientious," and " should be reserved 
as an extraordinary resource for great national emergen- 
cies, in which the necessity of a large additional revenue 
overrules all objections." 

Mr. Gladstone, speaking in 1853, also said, " I believe 
it " (an income tax) " does more than any other tax to 
demoralize and corrupt the people." And Mr. Disraeli 
subsequently in Parliament expressed his agreement with 
Mr. Gladstone by saying, " The odious features of this 
tax can not by any means be removed or modified " ; and 
with these opinions nearly all educated financiers and 
economists are in complete unison, except a comparatively 
few persons who, educated in Germany, have embraced 
the idea that because income taxes are effectively collected 
in countries having a despotic form of government, they 
can be equally collected in countries under a popular gov- 
ernment.* 



* As the opinions of English authorities (above referred to) have 
been disparaged on the ground that they represent old-time utter- 



TAXES ON INCOME IN FRANCE. 517 

In support of these conclusions attention is asked to 
the following historical evidence. It is well known that 
one of the principal causes which led to the great French 
Eevolution was the inequality (class exemptions) and mul- 
tiplicity of taxes ; and one of the first acts of the National 
Assembly of 1789 was to repeal all inquisitorial and arbi- 
trary taxes of every name and nature.* And although, 
from that day to this, France, by reason of a national 
debt greater than that ever borne by any other nation, has 
been compelled to resort to almost every expedient for ob- 
taining revenue, it has, theoretically at least, endeavoured 
to maintain a system of general taxation not inconsistent 
with the above principle. 

Under the head of indirect taxation, however, which 
includes the general direction of the stamp tax, " domainal 
public land" revenues, customs, duties on imports, salt 
and sugar taxes, and monopolization of the manufacture of 
powder and the sale of tobacco and matches, the so-called 
communes of France have a right to " levy a tax of three 
per cent on the annual income (interests, dividends, etc.) 
of personal property, such as French or foreign securities, 
shares, bonds issued by departments, industrial establish- 
ments, independent of the stamp or transfer tax, but not 
affecting the bonds of the state (or rentes), nor associa- 
tions of partnerships in a collective name, nor private obli- 
gations, mortgages, and the like." " Keligious societies 
are taxed five per cent on the income of their capital." 
In 1886 the revenue derived from the above taxes was re- 
turned at 47,200,000 francs ($9,400,000), representing in 
1886 a capita] of 1,500,000,000 francs, of which 131,000,- 
000 francs represented properties situated in France. 

The following sentiment or legal principle, laid down 

ances and imperfect fiscal experiences, attention is here asked to 
the following extract from a letter of Prof. Thorold Rogers, late 
member of the British House of Commons and Professor of Political 
Economy, University of Oxford, under date of August 25, 1884: 
" Nobody defends the income tax. It was first imposed on the 
tyrant's plea that the administration can not do without it, and 
it has been continued for the same reason. Every Chancellor of the 
Exchequer has condemned it in principle and has continued it in 
practice. It is not wonderful, therefore, that, fortified by these 
avowals, people who can evade the tax do so." 
* See ante, p. 117. 



518 THE THEORY AND PRACTICE OF TAXATION. 

by the United States Supreme Court in the case of Boyd 
vs. United States (116 United States Reports, 631, 632), 
though often apparently little regarded by the legal pro- 
fession, would, however, seem in itself to constitute a 
complete and insuperable barrier against any resort in 
the United States to the prosecution of arbitrary or in- 
quisitorial inquiries, which must of necessity be instituted 
and prosecuted by tax officials for the obtaining of any 
personal and warrantable data for the correct assessment 
of an income tax, the language of the court being as 
follows : 

"Any compulsory discovery, by extorting the party's 
oath or compelling the production of his private books 
and papers to convict him of a crime or to forfeit his prop- 
erty, is contrary to the principles of a free government. 
It is abhorrent to the instincts of an Englishman. It 
is abhorrent to the instincts of an American. It may suit 
the purposes of despotic power, but it can not abide the 
pure atmosphere of political liberty and personal free- 
dom." 

So much, then, for what may be termed the philosophy 
of an income tax. Consideration of some of its most in- 
structive experiences is next in order. 

The old Romans, who never gave much place to senti- 
ment in their laws or policy, had an income tax in the 
days of the empire, and they overcame all difficulties con- 
nected with its administration in the following manner : 
They authorized their tax officials, in cases where the 
citizen did not in their opinion make a satisfactory pay- 
ment, or was suspected of false statements in respect to 
his income or property, to administer torture; and the 
historian Gibbon, in writing about this feature of Roman 
history, justifies it in a measure in the following language : 

" The secret wealth of commerce, and the precarious 
profits of art and labour, are susceptible only of a discre- 
tionary valuation; and as the person of the trader sup- 
plies the want of a visible and permanent security, the pay- 
ment of the imposition, which in the case of a land tax 
may be obtained by the seizure of property, can rarely 
be extorted by any other means than corporeal punish- 
ment." 

That the Roman income-tax system was successful as 



ASSESSMENTS IN FRANCE. 519 

respects revenue is probable, but it was also destructive 
of the state ; for the testimony of history is that its people 
finally welcomed the inroad of the barbarians as a lesser 
evil than the continuance of their tax system. 

As already intimated, there has been nothing cor- 
responding to a general income tax, with personal inquisi- 
torial features, in the fiscal system of France since the 
Kevolution of 1789. In place of it, taxes are levied on 
the indicia or signs which each citizen presents of his 
possession of income or personal property; and the rents 
or rental value of the premises he occupies for residence 
or business, and the doors and windows of buildings, are 
regarded as such signs or indicia. This tax applies to the 
doors and windows into streets and courtyards and gar- 
dens of houses or workshops. In general, all openings 
giving light or air to houses and buildings for human 
habitations, shops, workshops, sheds, warehouses, etc., are 
taxable, whatever their shape, dimensions, or fastening 
may be. Thus, all openings to afford light to the stairs, 
to a habitable room opening on a covered yard, of a habit- 
able house used for rural purposes, or the door of a 
garden leading to a dwelling, all are taxable. The open- 
ings to new buildings become taxable as soon as they are 
habitable. If at the time of making the tax roll some 
rooms in a new house are not yet habitable, the openings 
of such rooms are for the time exempt. If the entire 
front of a room or atelier consists of windows, the num- 
ber of windows to be taxed is determined by their solid 
divisions of either iron, wood, or stone. Exempt are the 
doors and windows to light or air of barns, sheepfolds, 
stables, cellars, etc., not intended for human dwelling. 
Further exempt are doors or gates not locked ; also interior 
doors of communication from one yard to another. Doors 
as well as windows of manufacturing establishments are 
not taxable except to those in the dwelling part. 

Again, what is called a mobiliary tax of France is gov- 
erned by the amount of rent paid or the rentable value of 
the dwelling of the taxpayer. That portion of a house 
used exclusively for trade or a similar purpose and not 
for a residence is not counted in the valuation of the rent- 
able value like a furnished house or a private chapel; but 
premises or dependencies of dwelling houses, courts, 



520 THE THEORY AND PRACTICE OF TAXATION. 

stables, and carriage houses of luxury, clubs, societies, and 
Masonic lodges are counted in. 

In assessing the mobiliary tax it is not necessary that 
the figures taken as a basis for taxation should be the real 
rent; it is sufficient that the proportion of the assumed 
rent, the basis of the tax, and the real rentable value of 
the dwelling should be exactly the same for all taxpayers ; 
so that a taxed citizen can convince himself whether he 
is overtaxed or not by comparing his own rent with that 
generally charged in his community. 

The theory which underlies the French system of taxa- 
tion is that the rent or rental value of the premises occu- 
pied by the taxpayer as a residence is proportioned to the 
amount of his property; and this, generally speaking, 
would seem to be a not unreasonable assumption. At all 
events, it would seem to possess this great advantage — 
namely, that the rent payable by every citizen may be 
readily ascertained, while the amount of his means can 
not, if he chooses to conceal it.* 

Note. — M. Yves Guyot, in a report recently made on ques- 
tions connected with, proposals relating to the establishment of an 
income tax in France, regards the great fiscal wrong in that 
country to be the inequality of the assessments of real property 
in the different departments. This is increased by the fact that 
the French land tax is not levied at the same rate on all prop- 
erty, but the proportion of the whole amount which is to be paid 
by each department is fixed by the central authority; the depart- 
ments allot the quotas to be paid by the several communes, and 
the communal authorities apportion their quota among the indi- 
vidual taxpayers. The tax is, to use the French technical term, 
one of repartition and not of quotite. If it were the latter, each 
taxpayer would pay in proportion to his property; the rate of the 

* The following epitome which has been recently made of the 
burden of taxation imposed upon an honest taxpayer in New York 
as compared with that which is borne by a man possessed of the 
same means or income in the city of Paris is believed to be approxi- 
mately correct: 

" Let us assume that the property of such an individual, if out 
of business, consists of personal estate, such as railway bonds and 
stocks of the value of $100,000, that the net annual income there- 
from is $5,000, and that the rent paid by such individual amounts 
to one fifth of his income, equal to $1,000, or that being engaged 
in business his average annual profits enable him to occupy an 
apartment of the same rental value. In Paris the party in ques- 
tion would have to pay as contributions mobilieres about 400 



TAXATION OF CAPITAL. 521 

tax would be fixed by the Government instead of the amount to 
be raised from each department. The valuation on which this tax 
is levied is the net annual value, and was fixed unsystematically 
and imperfectly from fifty to seventy years ago; the value of real 
property has changed, but the original assessment is still in force. 
The result is that some departments pay from six to eight times 
as much as others in proportion to their real annual value. 

M. Guyot advocates a tax on the capital in place of on the 
annual value. There is, as he points out, a manifest injustice in 
taxing the same amount of capital at different rates, according 
to the mode in which it is invested. In France a capitalist might 
invest his money in building lots or other land temporarily un- 
productive, but held for resale at a profit. The investment, yield- 
ing no income, would practically escape taxation. If the same 
sum were invested in safe securities yielding an income of three 
per cent, the tax would be levied on that income, while if placed 
in business where, though it might temporarily yield twelve per 

francs, or, say, $80, or, including his door and window tax, which 
he pays through his landlord, say, $90. If engaged in business or 
practising a profession, he would have to pay a license tax or 
patente, which varies from 100 to 1,000 francs (we are speaking, 
of course, of the mass of the people, and not of merchants or 
companies occupying very extensive and costly premises, whose 
patente may run up to several thousand francs, and whose taxes 
are payable out of the profits of their business, and not out of the 
income derived from their investments). Such householder thus 
pays on an average, say, 1,000 francs as the total of his direct 
taxes. Supposing him to pay the sum of 1,000 francs indirectly in 
the shape of octroi duties on the provisions consumed by himself 
and family in the course of the year (and this allowance we con- 
sider a very liberal one), we find the total amount of his annual 
taxes, direct and indirect, to be, say, 2,000 francs, or $400; while in 
New York a person similarly situated would have to pay, if he 
made an honest and full declaration of his property, about 2.6 per 
cent on his principal, making, in the present case, his tax amount 
to $2,600. Even if we assume that the Parisian pays an additional 
$200 per year on an average in the way of succession and other 
exceptional taxes, his contributions to the expenses of the Gov- 
ernment would be at the utmost only $600 in place of the $2,600 
levied upon the unfortunate New-Yorker. 

" In return for what he pays, the Parisian enjoys well-paved 
and well-cleaned streets, wide and unobstructed sidewalks, shade 
trees with benches under them for the weary, public gardens kept 
in beautiful order, etc., while the New-Yorker gets — well, the less 
said on this subject the better. May we not entertain the hope 
that honest men of all parties will soon unite to secure a better 
system of taxation and a more efficient administration of the gov- 
ernment in the most populous and wealthy city of the model 
republic? or must we accept as a melancholy truth that universal 
suffrage inevitably results (at least in American cities) in rabid 
democracy, dishonesty, and dirt?" 
34 



522 THE THEORY AND PRACTICE OF TAXATION. 

cent, the loss of the whole would be risked, the owner would pay 
four times as heavy a tax as in the previous case. 

The same objections have been frequently urged against the 
income tax in England, but there a difficulty exists in the way 
of assessing the capital value of land — viz., that land is generally 
the subject of letting and seldom of sale. In France, however, 
not only are there nearly a million sales of land each year, but on 
every devolution by inheritance the capital value of the land is 
officially registered. The ascertainment of the capital value of 
the entire country would be an easy matter, and such an assess- 
ment would be of more durable benefit than an official estimate 
of the annual value, which, necessarily varying from year to year, 
would be a much more fluctuating and uncertain basis for taxation 
than the selling value. 

The reforms proposed by M. Guyot would increase the land tax 
in those departments which are undervalued; and he estimates that 
a revaluation for taxation would cost ten million dollars, and that 
it would take ten years to complete. He thinks the complaint by 
landowners of overtaxation generally is unfounded; but he would 
nevertheless relieve them in the interest of free-trade principles 
from the vexatious and heavy duties on transfers, which, with 
legal expenses, make the cost of sales amount to ten per cent of 
the price paid. This heavy impost prevents sales, and its removal 
should be supplemented by establishing a simple system of trans- 
fer on the record-of-title principle. These reforms, which involve 
equality of taxation and free trade in land, are, in M. Guyot's 
opinion, essential to the well-being of France, whose greatest 
wealth consists in her land. Fifty per cent of the population are 
engaged in agriculture, and, without releasing them from their 
fair share of the public burdens, they should be placed in such 
circumstances as will permit land to pass into the possession of 
those who are most capable of working it to advantage. {Rapport 
sur les questions relatives a Vimpot sur le revenu. Par Yves Guyot. 
Paris: Guillaumin & Cie. 1887.) 

Kussia seems to have abandoned the idea of an income 
tax, and in place of it would appear to have substituted 
what is known as a " hearth " tax, which is collected from 
each separate building inhabited, or used for any com- 
mercial or industrial purpose. 

An income tax has existed in Austria-Hungary since 
the beginning of the nineteenth century. It was repealed 
in 1829, and re-enacted in 1849. This tax is divided into 
three classes. "Under the first class, the tax in force in 
1887 was from eight and a half per cent to ten per cent 
of net income." Under this class the following income 
was taxed: income derived from all those trades and oc- 
cupations which are subject to a license tax; the income 
of mining and smelting establishments, and the profit 



EUROPEAN INCOME TAXES. 523 

made by the tenants of agricultural lands. In the second 
class, which includes income from services rendered or 
labour performed in occupations not subject to a license 
tax, the rate reported is exceptionally high. Under the 
third class, which embraces interests from loans, from in- 
vested capital, savings banks, and life-insurance com- 
panies, the rate is reported to be ten per cent. The ex- 
emptions under this latter head are very extensive, and 
include the pay of officers and soldiers in active service, 
interest on deposits in savings banks, and a great number 
of public securities — as five per cent Austrian stocks and 
bonds, certain bonds of the Tyrol, bonds of all railroads 
subject to taxation, lottery loans of 1859 and 1860, and a 
large number of other corporation securities. 

Servants are only taxed under the second class and 
in case their total income exceeds six hundred and thirty 
florins ($226.16). 

In case a party subjected to an income tax makes 
either a false return or neglects to make any, thrice the 
amount of the tax is imposed, the payment of which, 
however, includes the tax itself, so that the fine proper 
is double the amount of the tax. 

Denmark. — The income tax of Denmark was recently 
fixed at two per cent of the taxpayer's income. The tax 
is collected by authorized agents, who are obliged to give 
ample security for the faithful performance of their duties, 
for which they receive a remuneration of two per cent 
on the amount collected, together with an allowance for 
house rent in return for the obligations imposed upon 
them of having residences and offices in the taxing dis- 
tricts. This income tax does not seem to be objectionable 
in the sense of undue burdensomeness, the only complaints 
made being in regard to the publicity of the pecuniary 
conditions of the individuals taxed. 

Switzerland. — A resort to an income tax for the pur- 
pose of defraying state expenditures seems to find especial 
favour in Switzerland, though it does not seem probable 
that the systems adopted for its enforcement will ever 
be found satisfactory to the people of other countries. 
Thus, in the taxation of incomes, the average rate does 
not generally exceed four or five per cent, but in some can- 
tons the rates rule as high as seven and even ten per cent. 



524 THE THEORY AND PRACTICE OF TAXATION. 

By a comparatively recent law established in the canton 
of Vaud, which in point of population and wealth ranks 
third in the Swiss confederation, progressive taxation has 
been established, and the property of the canton is divided 
into three classes which are taxed in the following propor- 
tions : One per cent 1,000 for estates under $5,000 capital 
value; 1£ per cent 1,000 between $5,000 and $20,000, and 
2 per cent 1,000 for estates exceeding $20,000 in value. 
Personal property is divided into seven classes, the lowest 
class being under $5,000, the highest exceeding $160,000 
capital value. The rates of taxation on these classes are to 
be in the proportion of 1, 1J, 2, 2J, 3, 3J, and 4 per cent 
1,000. Incomes from earnings are also divided into seven 
classes, but in arriving at the net amount to be taxed, a 
deduction of $80 is allowed for each person legally de- 
pendent on the head of the family for his support. The 
result of this is that while a bachelor earning $1,000 a 
year would pay a tax of $15, a married man with the same 
income and ten children would pay but fifty cents, and if 
he had twelve children nothing. The Vaudois law was 
carried by overwhelming majorities when submitted, as 
was necessary, to a " referendum " vote of the whole people, 
and at every subsequent stage of its progress. 

The only one of the great governments of the world 
at the present time which can prefer a claim to a large 
measure of success in administering an income tax is that 
of Germany, and especially that of the kingdom of Prus- 
sia; and the methods by which such success has been at- 
tained, and which seem to be based on the precedents estab- 
lished by the old Eomans so far as the changed conditions 
of civilization will permit, ought to be most instructive 
to those who think this tax can be administered and made 
notably productive of revenue in the United States. The 
tax in Germany is levied, as it were, in duplicate, or under 
two forms : first, by towns and cities, and termed " com- 
munal " ; and, second, by the state, under the designation 
of " class " tax. An entire exemption from these taxes 
is granted only to the very poorest and humblest of the 
population. 

" Petty hucksters with a small stock of potatoes, sec- 
ond-hand clothes pedlers, servant girls earning four dol- 
lars and twenty-five cents a quarter, pay the communal 



PRUSSIA AND GREAT BRITAIN. 525 

tax, and are also inscribed in the first (or lowest) grade 
of the class tax." * 

Every foreigner staying in Prussia more than one year, 
but with no intent of becoming a permanent resident, must 
expect to be taxed on his income at the expiration of the 
first year, although none of the sources of such income 
may be within the territorial jurisdiction of Prussia. Up 
to the year 1891- ? 92 the income tax of Prussia was levied 
by a board of income-tax commissioners, one third of 
whom were appointed by the authorities and two thirds 
by the taxpayers. The assessing was done by the board 
on information and evidence obtainable; and in the ab- 
sence of authentic proof as to the amount of annual in- 
come, " circumstantial and hypothetical evidence was ac- 
cepted." Parties thus assessed might appeal from the 
conclusions of the board to another tribunal organized 
for that purpose, whose decision was final. Appeals are 
not often made to this latter board, as the methods 
adopted by it to bring unwilling or evasive taxpayers to 
terms are harsh and inquisitorial in the extreme and most 
peremptory. The mode of proceeding against delinquent 
taxpayers is very summary. If after three days' written 
notice payment fails to be made, a mandate is issued by 
the tax collector, and the property of the delinquent, espe- 
cially his household goods, is seized and sold. By another 
curious provision in the German tax law the collector 
of taxes is made personally liable for any taxes lost by 
reason of his failing to mercilessly enforce the collection 
within a prescribed period. In 1891 some mitigation of 
the harsh proceedings involved in the assessment of the 
income tax in Prussia was made by the Government, and 
now every taxpayer is allowed to make a return. 

Great Britain. — The idea of a general income tax 
as a means of raising revenue was first embodied in the 
form of a statute in Great Britain under the administra- 
tion of Mr. Pitt, in 1798, and was proposed and advocated 
solely as a means for obtaining additional revenue for the 
prosecution of the war with France. It imposed a tax 
of ten per cent on all incomes in excess of £200 ($1,000). 
After the Peace of Amiens, in 1802, it was repealed on the 

* United States Consular Reports, Nos. 99, 100, p. 461. 



526 THE THEORY AND PRACTICE OP TAXATION. 

ground that a tax of this character ought to be exclusively 
reserved for the exigencies of war; and for a like reason 
it was reimposed on a revival of the war during the fol- 
lowing year. Subject to various modifications, it formed 
an important constituent of the fiscal system of Great 
Britain until after the battle of Waterloo and the peace of 
1815, when it was again repealed. After this, nothing 
more was heard about it until 1842, when Sir Eobert Peel 
reimposed it as a merely temporary measure — i. e., for a 
period of five years. It has, however, since remained a 
permanent feature of the British fiscal system, although 
its repeal has been promised and anticipated by various 
administrations, and in the general election of 1874 Mr. 
Gladstone, in an address to the country, especially asked 
that the confidence and continued administration of the 
Government be given him on the ground that he contem- 
plated an early repeal of the income tax. Circumstances, 
however, have prevented any such action, and in subse- 
quent years of office Mr. Gladstone has not hesitated to 
raise the tax whenever the necessity of additional reve- 
nue for the Government became imperative. That he has 
regretted his inability to abolish it is evident from his 
saying, in his financial statement in 1853 : " I think some 
happier Chancellor of the Exchequer may achieve this great 
accomplishment, and that some future poet may be able 
to sing of him: 

" He took the tax away, 
And built himself an everlasting name" 

From the outset the income tax has been more odious and 
unpopular in Great Britain than any other form of taxa- 
tion. Among statesmen and economists there is hardly 
any dissent from the opinion that the tax is bad in prin- 
ciple, because unequal and unjust in its assessment, and 
incapable of being made equal and just; and this, too, 
although the administration of the revenue laws of Great 
Britain — owing to the comparatively small area of terri- 
tory subjected to supervision, and the fact that the tenure 
of office on the part of officials is dependent solely on 
honesty and intelligence — is wonderfully efficient, far more 
so than can be expected under existing conditions in the 
United States. The annual reports of the British Com- 



ENGLISH INCOME TAXATION. 527 

missioners of the Inland Revenue always mention exten- 
sive evasions of the income tax. For the year 1864-65 
the amount of such evasion was estimated to have been 
equal to about one sixth of the revenue collected under 
it. The demoralizing effects which are inevitably produced 
by the habit of making false returns respecting income are 
regarded by many British authorities as far more deplor- 
able than those resulting from any inequality contingent 
on this form of taxation; as the transition from a fraud 
upon the Government to a fraud upon the public is com- 
paratively easy. The reported product of the income tax 
of Great 'Britain for 1893-'94 was £15,200,000 ($76,000,- 
000) ; an amount beyond the estimate.* 

* The following incident, which has become a part of English 
political history, is curiously illustrative of the state of public 
opinion in England at the time of the first imposition of the in- 
come tax under the statute of Mr. Pitt, and is derived from the 
memoirs of John Home Tooke: 

Mr. Tooke was an Englishman who participated actively in Brit- 
ish politics during the last third of the last century. He early 
espoused the side of the Americans in their struggle for liberty, 
and was persecuted, fined, and imprisoned by the British Govern- 
ment for publishing an advertisement for a subscription for the 
widows and orphans of the Americans " murdered by the King's 
troops at Lexington and Concord." After his release from prison 
he naturally, and in connection with John Wilkes, made himself 
politically disagreeable to the Government, and the Government 
in turn made itself disagreeable to him; and accordingly the office 
of the commissioners for carrying into execution the act for taxing 
incomes addressed Mr. Tooke the following letter: 

" May 3, 1799. 

" Sir : The commissioners having under consideration your dec- 
laration of income have directed me to acquaint you that they 
have reason to apprehend your income exceeds sixty pounds a 
year. They therefore desire that you will reconsider the said dec- 
laration and favour me with your answer on or before the 8th inst. 
" I am your obedient servant, 

" W. B. Luttley, Clerk." 

To this Mr. Tooke replied : 

" Sir : I have much more reason than the commissioners can 
have to be dissatisfied with the smallness of my income. I have 
never yet in my life disavowed or had occasion to reconsider any 
declaration which I have signed with my name. But the act of 
Parliament has removed all the decencies which used to prevail 
among gentlemen, and has given the commissioners (shrouded un- 
der the signature of their clerk) a right by law to tell me that 



528 THE THEORY AND PRACTICE OF TAXATION. 

The United States. — The income-tax experiences of 
the United States are so little in accord with those of any 
other people or countries that their consideration with a 
view of obtaining a practical acquaintance and compre- 
hension of the whole subject would seem to be best facili- 
tated by grouping their most important characteristics 
under three heads — namely, their origin and history and 
undoubted influence on the political and fiscal policy of 
the nation. 

Under the great financial necessities of the Federal 
Government by reason of the war the attention of Con- 
gress was directed to an income tax as a source of revenue 
as early as the summer of 1861; and in that and the fol- 
lowing year laws establishing such a tax were enacted. 
Their provisions were, however, so complicated, and the 
methods authorized by them so inquisitorial, that the 
Commissioner of Internal Eevenue reported in 1863 that 
they deprived the tax " of all claims to public favour." 
The revenue returns under such circumstances were very 
moderate: $2,741,858 in 1863, and $20,294,000 in 1864. 
In this latter year a more comprehensive and effective law 
was enacted, which was followed by better results, the 
collections to the credit of the income tax rising from 
$32,050,000 in 1865 to $72,982,000 in 1866, and $66,014,- 
000 in 1867. But as the necessity for very large revenues 
on the part of the Government ceased with the termina- 
tion of the war, and the spirit of patriotism engendered 
by the war on the part of the people abated, the collec- 
tions fell off very rapidly. Thus, between 1866 and 1867 
the total receipts on account of the income tax, without 
any change in the law, declined from $72,982,156 to ^>6G,- 
014,000; and in 1872, with an exemption of $2,000, only 
72,949 persons in the United States, out of a population 
of over 39,000,000, admitted under oath that they were 
in receipt of any income liable to taxation in excess of the 

they have reason to believe that I am a liar. They have also a 
right to demand from me upon oath the particular circumstances of 
my private situation. In obedience to the law, I am ready to 
attend upon this degrading occasion so novel to an Englishman, 
and give them every explanation which they may be pleased to 
require. I am, sir, your humble servant, 

"John Horne Tooke." 



AMERICAN INCOME TAX. 529 

exemption. Those only who were officially and intimately 
connected at this time with the Internal Eevenue Depart- 
ment of the United States Treasury can form any adequate 
idea of the amount of perjury and fraud that character- 
ized and pervaded the country, during the years 1867 to 
1872, 'as the outcome of the then existing system of in- 
ternal revenue. And American ingenuity was never more 
striking^ illustrated — not even by the exhibits of the 
patent office — than it was at that time in devising and suc- 
cessfully carrying out methods for evading the taxes on 
incomes and distilled spirits. 

One curious feature of Federal experience with this 
tax, the tolerance of which would now be regarded as in- 
compatible with any just and efficient administration of 
it, was, that the returns made under it were thrown open 
to the public; and one commissioner of internal revenue 
instructed his officials to have them published in the pages 
of local papers, " in order," as he said, " that the amplest 
opportunity may be given for the detection of any fraudu- 
lent returns that may have been made." This idea did 
not find much favour with the public, who, in fact, dur- 
ing the later years of the tax, were inclined to regard with 
great equanimity all successful attempts to evade it. 

The income tax ceased to form a part of the internal 
revenue system of the United States after the year 1872. 
It was, however, made a part of the tax system of several 
of the States, and the following record (hitherto generally 
overlooked by the public) of the recent administrative 
experience of one State ought to be especially worthy of 
the attention of those who advocate the readoption of this 
form of taxation by the Federal Government. 

No State in the Union has a more illiberal, all-pervad- 
ing system of taxation than Massachusetts, and in no 
State is the administration of tax laws more stringent 
or arbitrary. What Massachusetts fails to accomplish 
in the assessment and collection of taxes would, therefore, 
seem to be of little use for any of the other States or the 
Federal Government to attempt with any anticipation of 
success. This Massachusetts system finds its fittest ex- 
emplification in the city of Boston; and the officials who 
constitute its department of municipal taxation never in- 
dulge, as the taxpayers well know, in much sentiment in 



530 THE THEORY AND PRACTICE OF TAXATION. 

the discharge of their duties. The acknowledged repre- 
sentative of this board for many years never hesitated to 
say that he recognised but one principle, and that was, 
that in matters of taxation the taxpayer had no rights 
which the State was bound to respect; and, as chairman 
of a State commission which some years ago made a report 
to the Legislature, and with the Declaration of Independ- 
ence confronting him with its assertion that it is a self- 
evident truth that " all men are endowed by their Creator 
with certain inalienable rights," he also gravely asserted 
that " the individual person [in Massachusetts] has no 
inalienable rights except that to his own righteousness/' 

One of the specialties of municipal taxation in Boston, 
under the supervision of its Board of xAssessors, is an in- 
come tax, and its methods of administration are substan- 
tially as follows : Taxpayers are required to make a return 
annually, and in detail, of all their property which the 
law makes subject to taxation (and that embraces almost 
everything in Massachusetts except their proprietary in- 
terests in graveyards) ; and in blanks officially furnished 
for such purpose there is a special space for a return of 
every individual's income. If no return is made, then 
the Board of Assessors meet in secret in an upper room 
of the City Hall, known as the " Dooming Chamber," and 
arbitrarily determine the amount of income for which 
each delinquent shall be assessed; and from such determi- 
nation there is practically no appeal. The amount thus 
assessed for income to the individual is then " lumped in " 
with the aggregate of his other taxes ; and if a dissatisfied 
taxpayer wishes to discover what amount has been decided 
upon as his income, the assessors will not afford him any 
information. Under such circumstances it might natural- 
ly be supposed that the administration of an income tax in 
the city of Boston would be an unqualified success. But 
what are the facts ? 

First, comparatively few of the taxpayers of Boston 
make any returns to the assessors of their income. Sec- 
ond, the returns that are made are not open to the in- 
spection of the public. There is no law in Massachusetts 
covering this point, but one of the Boston assessors is 
reported as saying that if the returns were open to public 
inspection none would be made, as the chief objection of 



MASSACHUSETTS SYSTEM. 531 

taxpayers to filing returns was the fear that their incomes 
from business or professions might be known. The 
statutes of Massachusetts, however, provide that the re- 
turns of each individual's property shall be made by the 
assessors of every city and town in the State to the secre- 
tary of the Commonwealth; but inquiry shows that the 
Boston assessors make no such returns. Third, although 
the amount annually collected from an income tax in the 
city of Boston is very considerable— $840,000 in 1892— 
it probably represents, according to the Boston Advertiser, 
" only about one fourth of what is due in the city from 
incomes." In the face of such an exhibit the question 
is pertinent, AVhat measure of success do the present 
advocates of a Federal income tax expect will follow an 
attempt to expand the Boston system of its administra- 
tion over an area of country extending from Florida to 
Alaska? 

One would naturally think that the lesson of experience 
which the Government and the people of the United States 
have already had, would restrain further experimenting 
with this subject until the next war or the arrival of the 
millennium. 

That a free government can not efficiently collect a tax 
which its people regard as unjust without a resort to des- 
potic methods that public sentiment in turn will not 
tolerate is illustrated in this further tax experience of 
Massachusetts : 

The State laws require that citizens who are share- 
holders in corporations organized in other States shall be 
taxed in Massachusetts on the market value of shares so 
held ; and such owners are required to make a return under 
oath of the amount of such property in their possession.* 
Yet a petition recently presented to the Legislature of the 
State by representative members of boards of trade and 
chambers of commerce recites that the law in question 
" is ineffective and therefore ridiculous, as is proved by 
the fact that although the market value of shares of for- 
eign corporations held by citizens of Boston alone is be- 
lieved to be over $600,000,000, the amount taxed by the 

* The tax laws of New Hampshire and Vermont are drafted 
especially with a view to compelling the disclosure of income. 



532 THE THEORY AND PRACTICE OF TAXATION. 

assessors of Boston was then only estimated at $45,000,- 
000; and nearly all of this that is known is taxed to the 
unfortunate people whose estates are in trust." * 

In the United States the income tax, as enacted in 
1863, exempted $600 annual income for each person, to- 
gether with whatever was paid annually for rent and re- 
pairs of residence. Five per cent per annum was then 
levied on all incomes above $600 and not in excess of 
$5,000 ; seven per cent on all incomes in excess of $10,000. 
In the income tax of the United States as it existed at one 
period there was, therefore, recognised the principle not 
only of exempting incomes below a certain amount from 
all taxation, which amount, in order to keep up the appear- 
ances of equity, was allowed to be equally deducted from 
all larger incomes; and in addition a further feature, not 
generally recognised in other existing systems of income 
taxations, of " graduating " the assessment by increasing 
the rate or the percentage on the larger incomes ; a system 
most exceptional and peculiar, but which on first presenta- 
tion seemed to find favour as an ingenious and equitable 

* If any one thinks that this extraordinary tax experience is 
limited to one section of the country, he would do well to acquaint 
himself with the recent results of the State of Ohio in attempting 
to tax money on deposit. Ohio has even a more efficient and 
minute scheme of taxing all classes of property than Massachusetts. 
Not only is every citizen bound under oath to make a complete 
return of his property, but the law, in addition, empowers each 
county in the State to contract with certain so-called " tax in- 
quisitors " for the payment of twenty per cent of all taxes collected 
through their agency on previously assessed property. How suc- 
cessful this scheme has been in collecting taxes on money on de- 
posit is shown by the fact, revealed in a recent report of the State 
Board of Tax Commissioners, . that while the amount of money 
on deposit in the State, national, and private banks of Ohio in 
1892, and subject to State taxation, was at least $190,000,000, the 
amount actually returned for taxation in the whole State during 
that same year was but a little over $32,000,000. There is a re- 
mark that has almost assumed the character of a proverb, that a 
text suitable to and illustrative of every situation may be found 
in the Bible. The text that is most applicable, and which ought to 
be full of instruction to every congressional advocate of the en- 
actment of an income tax by the Federal Government in time of 
peace, will be found in the sixth chapter of the First Epistle of 
Paul to the Corinthians, where the apostle, as if he had the ex- 
isting situation in view, remarks, " All things are lawful unto me, 
but all things are not expedient." 



DISCRIMINATING INCOME TAX. 533 

method of equalizing the burdens of the State between the 
rich and the poor. 

The present is therefore an advantageous opportunity 
for asking whether any income tax which discriminates in 
any degree is likely, as is often claimed, to constitute the 
one perfect form of taxation of the future. And at the 
outset attention is asked to the following considerations, 
to which popular attention is not always intelligently 
given : 

A Federal income-tax system necessarily involves mul- 
tiple taxation on one and the same income, person, and 
property. For example, in the United States a citizen of 
any one State would be liable, in the first instance, to the 
Federal tax on his income; second, to a State tax on the 
same income; third, to a tax on the property or business 
producing the income, in virtue of its location and con- 
sequent territorial jurisdiction of the State. In some 
States — Massachusetts, for example — the State, in virtue 
of its jurisdiction over a person, taxes him also for prop- 
erty beyond its territorial jurisdiction and subject to taxa- 
tion in the State where it is an actuality. Doubtless such 
duplications in a greater or less degree will be inevitable 
in the case of all Federal taxation. But where there are 
so many sources available to the national Government 
for obtaining revenue, it would seem to be impolitic for it 
to encroach on those methods which are particularly ap- 
plicable to the States — as income taxes, taxes on legacies 
and successions,* which are governed and protected by 
State laws, and franchises, which are almost exclusively 
granted by the States and rarely by the Federal Govern- 
ment. Certainly there would seem to be no warrant in 
either justice or expediency in unnecessarily favouring 
such a system of multiple taxation; thereby increasing the 
real or fancied grievances of the people in respect to all 
taxation, and creating, by reason of a sense of injustice, 
additional temptations on the part of the taxpayer to 
fraud and evasion. 

Again, all modern s}^stems of income taxation have 
recognised the principle of discriminating in favour of 
persons in receipt of comparatively small incomes, and 

* See post, Chapter XXVIII. 



534 THE THEORY AND PRACTICE OF TAXATION. 

have provided as a fundamental feature of their policy, 
that all incomes below a certain rate should be exempted 
from assessment. Such exemptions, except in the case of 
the United States, have always and until within a recent 
period been of a comparatively small amount. In Great 
Britain it is £160 ($800) per annum. No difference is 
made in England in levying the income tax, though often 
proposed and advocated, on account of the source whence 
the income is derived. Whether the income is earned by 
the exertions of its possessor, or arises from property, 
so that the recipient is sure of it without the slightest 
exertion at all on his part, the same proportion has always 
been deducted from it. In the administration of its in- 
come-tax system England has abandoned the idea of as- 
sessing an income derived from multiple sources as a 
whole to one taxpayer, and in place divides an assessable 
income into schedules according to its source ; and, in fact, 
has given to such a system the popular designation of 
" the stoppage at source plan/ 7 Thus at present the 
sources of income in Great Britain are classified as per- 
taining to one or more of five schedules — designated as 
A, B, C, D, and E. For example, the profits or income 
derived from agricultural industry are classified as under 
schedule A, and those from manufactures, mines, gas 
works, and water supplies under schedule D, and the like; 
and it is only in schedules A and D that the income re- 
ceiver must make a return of agricultural, mercantile, or 
manufacturing gains or profits.* 

The result of a progressive income tax instituted a 
few years since in Yaud and other prosperous and popu- 
lous Swiss cantons is reported to have already verified 

* A recent number of the London Times reports the following 
additional illustration of the ingenuity of the people of every 
country subject to an income tax to evade the payment of the 
same: 

"There is an argument in favour of the separation of the in- 
comes of married couples for the purpose of income tax which has 
not yet been advanced. It is the immoral state of the law as it 
stands at present. John and Mary, each possessing incomes of less 
than £ 500, but in the aggregate exceeding that sum, agree to live 
together as a certain ' advanced ' couple did who made themselves 
notorious only a short time since. They are both entitled to relief 
under the act. Should they, however, legalize their union, neither 



PROGRESSIVE TAXATION. 535 

the predictions and prophecies of the European economists. 
The project has been often discussed in England, France, 
and other countries, but the tendency of economic discus- 
sion has always been generally adverse to it, on the ground 
that such forms of taxation would discourage the perma- 
nent investment of capital, and encourage capitalists to 
transfer their capital and business to other and foreign 
localities. Vaud, however, in particular, determined to 
ignore the economists and impose the tax, and the inevi- 
table disturbance of capital is reported to have taken place. 
One of the chief capitalists of Lausanne, a Swiss tanner 
named Mercier, employing several hundred workmen, is 
moving his business from Lausanne to the other side of 
the lake (Geneva) at Evian. Evian is in French territory, 

is entitled to any rebate, and they are actually taxed for rendering 
themselves respectable members of society. And this is in moral 
England." 

In the earliest of Mr. Gladstone's budget speeches, that of 1853, 
he distinctly refused, while admitting that a great deal might be 
said in favour of taxing incomes at different rates, according as 
they proceed from property or from skill, to break up the income 
tax into classes, and to make a difference in the assessment accord- 
ing to the source from which the income was derived. Mr. Glad- 
stone's argument, in this instance, applied to the difficulty of dis- 
criminating between the various degrees of the durability of in- 
comes ; but his definite refusal to " vary the rate of the tax accord- 
ing to the source of the income "—on the ground, to use his own 
words, that " I think that I should be guilty of a high political 
offence if .1 attempted it " — may suffice as a sufficient expression of 
his opinion in favour of a proportional system. In a recent number 
of the Nineteenth Century Mr. Gladstone referred to his budget of 
1853, in which he continued his income tax, and to his proposal, 
in 1874, to carry on the national finance without its assistance. 
He refers to the preparations made, through successive reductions 
of the tax, for its ultimate abolition, and observes that " in 1S74, 
for the first time since 1845, the opportunity arrived. The nation 
had its opportunity and took its choice. It may have been wise 
or unwise; but it was made by competent authority. The result 
is told in our present expenditure." 

In general discussions on the income tax, especially those which 
have characterized the financial debates in the British Parliament, 
the proposition has been often advanced that it is a hardship 
that incomes arising from the exertions of a man's brain should be 
charged at as high a rate as those resulting from invested capital : 
and during the present Parliament (1896) a motion was made by 
a leading member that the financial committee of the House may 
have permission to amend the assessment in such cases. In a de- 
bate which followed (instituted by Sir John Lubbock) it was 



536 THE THEORY AND PRACTICE OF TAXATION. 

and there is no progressive income tax there. " Up to 
this time," wrote M. Mercier, in a letter published by the 
Lausanne papers, " I have paid over 20,000 francs a year 
in state and town taxes. The new law would raise that 
figure to 80,000 francs or more. I owe it to my family to 
withdraw out of reach of what I can not consider other- 
wise than downright spoliation." 

A recent economist, commenting on this transaction, 
thus curtly developed the whole subject : " The fact is that 
a progressive income tax will not work under modern con- 
ditions. The modern movability of capital has made all 
the difference. The Florentine democracy taxed capital to 

stated that " while there was an immense difference, no doubt, be- 
tween the two classes of incomes, if extreme cases were considered, 
they nevertheless passed the one into the other by imperceptible 
gradations. Nor had any satisfactory treatment of investments 
ever been suggested. Let them take one class — the securities of 
foreign nations. Some were excellent, others, unfortunately, as in- 
vestors knew to their cost, were almost valueless. An arrange- 
ment, however, proposed by Sir Robert Peel in 1858 gave a substan- 
tial relief to those who had precarious incomes. They made their 
returns on an average of the income during the three preceding 
years, and, if the amount fell short, a rebate was given on the 
difference. He urged that they might make an effort this year to 
induce Parliament and the Government to revert to the old system, 
which, it was evident, would be only fair and a great boon to all 
those whose income depended upon their OAvn exertions, whether 
in law, medicine, or commerce." He contended that the rising and 
successful man was assessed on less than his income, while the 
man whose income was falling was made to pay on more than 
his income. The Chancellor of the Exchequer said in reply that 
" his friend had urged the desirability of returning to the system 
that existed prior to the passing of the act of 1865. He seemed to 
have overlooked the fact that the alteration effected by that act, 
which he now wished to overthrow, was introduced at the express 
instance of Mr. Hubbard, who was a strong advocate for lightening 
the burden of the income tax wherever practicable. Taking the 
average of a man's income for three years was a plan specially de- 
vised to meet the difficulty in the way of appeal that would be 
experienced by business and professional men. He was quite will- 
ing to allow that system to continue, as he believed that it was, 
on the whole, fair to both parties. The proposal of his friend, 
however, while adhering to the form of making a return upon the 
average, did not in fact carry out that principle at all, for the 
first year was only to be struck out where the fourth year showed 
a loss. Surely, therefore, if the revenue was to collect only on the 
small receipts, the principle of average ceased at once. For this 
reason he did not feel justified in accepting the amendment." 



EXEMPTIONS IN GERMANY. 537 

death, no doubt, but in the middle ages once a Florentine 
always a Florentine. Cosmopolitanism was not invented, 
and a man hesitated long before seeking his fortune among 
strangers when i stranger ' and ' enemy ' were almost 
equivalent terms. All that is now changed. A progressive 
income tax in England, unless very moderate and man- 
aged with the utmost circumspection — and even then the 
experiment would be too dangerous to try — would cer- 
tainly result in an enormous transference of English capi- 
tal to Belgium and Germany. If the idea of progressive 
taxation is feasible at all, it is only feasible in the death 
duties, and even there the difficulties are formidable 
enough." * 

In Germany, the income exemption being very small, 
nearly the whole population of the country, male and 
female, are made subject to the provisions of the income 
tax. According to M. Soetbeer, the German economist, 

* The rate of tax progression in Canton Vaud is much less heavy 
in the case of real than in respect to other descriptions of property. 
The amount of taxation is fixed yearly. It was for the first year, 
after the law was passed, at the rate of one hundred and twenty 
per mille on the lowest class of personal property, with exemptions 
on movable property, tools, kitchen utensils, clothes, and house- 
hold furniture. A much more intricate arrangement exists for 
income derived from personal exertions. Sixteen pounds a year 
is allowed to be deducted from the income, and exempted from taxa- 
tion, for the head of the family himself, his wife, for each of his 
children or descendants who are minors, and for each person for 
whose maintenance the head of the family is legally liable. Thus, 
a man with a wife and twelve children, possessing an income of 
five thousand six hundred francs (two hundred and twenty-four 
pounds) a year, would be entirely exempt from taxation, as also 
would be a man with a wife and three children and an income from 
labour of two thousand francs (eighty pounds) a year. It can not 
be supposed that a low taxation of this character, with all the 
risks involved of causing capital to emigrate, and of preventing 
strangers, who, after an interval, are also to be subject to the 
same tax, from settling in the canton, or from remaining there, with 
all the differences of class-feeling which it evoked, could have be- 
come law without calling forth some strong and almost passionate 
expressions. It has to be remembered that besides the taxation 
for the administration of the canton proper, those levied for the 
expenses, which we include under the head of local government, 
such as roads, watercourses, education, free to all classes in Switzer- 
land, and carried out with much vigour and cost, are likewise 
levied according to the same system. We may form some idea ol 
the weight of the burden thus imposed. 
35 



538 THE THEORY AND PRACTICE OF TAXATION. 

the total income of the classes in Germany who pay in- 
come taxes is $2,190,000,000;, and of this amount fifty-one 
per cent is owned by people whose incomes range between 
two hundred and twenty-five dollars and four hundred and 
twelve dollars. And the New York Nation surmises that 
a similar state of things would be found if an analysis of 
all classes of income-tax payers were to be made in 
England. 

In Austria a new law has been reported by a special 
Government commission since a previous statement (see 
this chapter, page 522). At present all persons of Austrian 
nationality whose annual income exceeds six hundred 
florins will be liable to a personal income tax which will 
be levied on a sliding scale. The scale is graduated so 
that five per cent will be levied on small incomes and as 
much as six per cent on large ones. Employees whose 
total incomes are less than six hundred florins per annum 
are exempt. In addition to the income tax, persons of 
either sex trading or carrying on business on their own 
account are subject to an additional impost. The new 
law is intended to supersede the existing system by the 
introduction of a general tax on private trading and in- 
dustrial establishments of all descriptions, a tax on all 
joint-stock companies and other enterprises legally bound 
to publish annual balance sheets, a tax on incomes derived 
from invested capital, and a personal income tax based on 
a progressive sliding scale. 

In France, the republic, although groaning under an 
almost overwhelming burden of debt, has recently refused, 
by a vote in its Chamber of Deputies of 267 to 236, to 
reconstruct its income-tax system, with a view of increas- 
ing the revenue derived from it; and subsequently, by a 
majority of 289, refused to reconsider its position, al- 
though the organic law framed for France in 1875 gives 
the national legislature unlimited power over taxation, 
direct as well as indirect. During the popular discussion 
that preceded this legislative action, it is interesting to 
note that a progressive income tax was not properly re- 
garded as more oppressive than many other forms of taxa- 
tion, and as a matter of French experience a heavy income 
tax — about four per cent — is now levied on French bonds 
and shares, in fact, on every dividend of a French com- 



INCOME TAX IN FRANCE. 539 

pany, while no income tax is levied on French Government 
stocks or foreign bonds ; and this apparently unfair treat- 
ment is accounted for because the revenue derived from 
French companies can be easily ascertained and the com- 
panies made responsible for it, while such a result would 
be impossible in the case of foreign bonds or foreign stocks 
and shares, and hence the difficulty has arisen of how to 
compel the taxpayer to pay : as, if the declaration was left 
to him, it was not unreasonable to suppose he would not 
declare it, or only declare it in part ; while if left for ascer- 
tainment by French officials, it was feared that the income 
tax in France would become a political weapon, which 
would be freely used against the legislators in power. 

M. Paul Leroy-Beaulieu, a distinguished French econo- 
mist, has recently advanced and advocated the view that 
a state in instituting an income tax for the sole purpose 
of obtaining revenue, ought not to grade the tax at all, 
or lay a higher rate on large incomes than on smaller 
ones; or, in other words, that it is better to tax all in- 
comes that are taxed at all at one uniform rate; and the 
reason for this is that the large incomes form so small a 
percentage of the total that the increased rate adds no 
great amount to the revenue, while it greatly increases the 
difficulty of assessing large incomes at their true value. 

In support of this view he submits in general terms 
the following results of his careful examinations in Prus- 
sia, Saxony, and England: In Prussia, where incomes 
above one hundred dollars were taxed, for the year selected 
by M. Leroy-Beaulieu, about one fourth of the people were 
entirely exempt. Of the rest, thirty-five thirty-sixths paid 
on incomes of from one hundred dollars to seven hundred 
and fifty dollars. Only one person out of forty-three had 
more than seven hundred and fifty dollars income. Only 
a little over four per cent of the total income of the coun- 
try belonged to persons having an income of from $4,000 
to $20,000, and only 1.7 per cent to those having over 
$20,000 income. 

In Saxony one fifth of the total incomes belonged to 
persons having less than one hundred and fifteen dollars 
yearly. The incomes of those having less than four hun- 
dred and seventy-five dollars each aggregated about two 
thirds of the total income. The great incomes, exceeding 



540 THE THEORY AND PRACTICE OF TAXATION. 

$25,000 to the person, belonged to seventy-three individ- 
uals, and comprised less than one and a half per cent of 
the total. 

In England incomes under one hundred and sixty 
pounds, or eight hundred dollars, are not taxed. In the 
year selected by M. Leroy-Beaulieu 381,000 persons paid 
income taxes of a total of $750,000,000. Of the contribu- 
tors 342,000, or about nine tenths, paid on incomes of less 
than $3,000, but it is noticeable that they were taxed on 
not much more than a third of the total amount. Thus 
nearly two thirds of the taxable income belonged to 39,000 
persons. One fifth of the total incomes assessed belonged 
to 1,222 persons, with an income of over $50,000 each. 

It will be seen that there is a striking difference in the 
results shown by M. Leroy-Beaulieu' s figures in Germany 
and England. Much of this difference is due to the nature 
of the laws, by which all small incomes in England are 
free from taxation, but a part of it is to be attributed 
to the larger fortunes in England. 

Italy. — There is no income tax in Italy in the sense in 
which that term is used in England and the United States, 
but there is a so-called professional income tax which was 
by an old law fixed at seventeen per cent on half the esti- 
mated income, and which has been somewhat increased by 
a new law in which there are variations made according 
to the sources of income. While Italy is, in fact, poten- 
tially one of the richest countries in Europe, and in an- 
cient times was so regarded, its name to a certain extent 
has come to be synonymous with poverty. The explana- 
tion of this is that its government is prodigal and dis- 
honest; and in gathering its income the dishonesty of its 
officials causes its taxation to fall most oppressively on the 
classes which a wise statesmanship would protect, and 
leaving the minimum burden on those who are most ca- 
pable of bearing its maximum. 

A new feature of the British fiscal system, which in 
a certain sense may be regarded as an increase of the ex- 
emption under the existing income tax, has recently been 
sanctioned by Parliament under the name of the " Farm 
Eating Act," which proposes to mitigate existing agricul- 
tural depression by relieving farm lands of a large part 
of their share of local taxation — i. e., as pointed out in 



EXEMPTION FROM TAXATION. 541 

debate in the House of Commons, by Sir William Har- 
court, "by taking £2,000,000 ($10,000,000) out of the 
general taxation of the country/' inasmuch as, if certain 
existing sources of revenue supply less, other taxes must 
supply more. " This will bring up the total governmental 
contribution for like purposes to £6,000,000 in 1868, and 
£11,000,000 in 1892." In a debate on this subject before 
the Eoyal Statistical Society, it was maintained that an 
assessment of the English poor rate, to which nearly all 
other English rates were now mere additions, was origi- 
nally founded on the principle of ability to pay, and that 
principle had never been expressly repudiated. But the 
making of this expenditure a local charge was in itself a 
negation of the principle of taxation according to ability, 
and the only question now was whether an attempt should 
be made to establish in each locality a principle which" had 
been established as regards the nation as a whole. Tke 
answer was in the negative. 

" Speaking very broadly," wrote Mr. Gfoschen a quarter 
of a century ago, "in England fifty years ago land bore 
two thirds of the taxation on real property, and houses 
and other property one third; the latter now bears two 
thirds, while the lands bear one third. In France lands 
bore over two thirds more than fifty years ago, and bear 
more than two thirds still. Land, in short, is not as a 
rule highly rated in England, and where it is highly rated 
what is wanted is a revised assessment." 

What is Exemption" from Taxation"? — An exemp- 
tion is freedom from a burden or service to which others 
are liable; but an exemption for a public purpose, or a 
valid consideration, is not an exemption except in name, 
for the valid and full consideration, or the public purpose 
promoted, is received in lieu of the tax. Nor is an ex- 
emption from taxation a discriminating burden on those 
who pay an income tax, provided the person or institu- 
tion benefited by the exemption is a pauper, or a public 
charitable institution; for then there is consideration for 
the exemption, and it is justified as a matter of economy, 
and to prevent an expensive circuity of action in levying 
the tax with the sole purpose of giving it back to the in- 
tended beneficiary of the Government. The avoidance of 
this unnecessary circuity of action is not, moreover, an in- 



542 THE THEORY AND PRACTICE OF TAXATION. 

jury but a gain to those who pa}- the tax. It can not, 
however, be seriously claimed that a man having $100,000 
of productive capital, and receiving from it $4,000 of 
annual income, is entitled to receive support from the 
Government as a public pauper. 

An income tax which permits of any exemption whatever 
is a graduated income tax, not by the rate of the tax but 
by the amount of the exemption, because all incomes below 
an arbitrary line are entirely exempt from the tax. Again, 
in treating of an income tax it should be always borne 
in mind that, when a Government taxes the income of 
property, it in reality taxes the property from which the 
income is derived. In England and on the Continent of 
Europe land is taxed on its yearly revenue, or income 
value, and these taxes are always considered as land taxes. 
Alexander Hamilton, in discussing the taxation of incomes 
derived directly from property, used this language : " What, 
in fact, is property but a fiction, without the beneficial 
use of it? In many instances, indeed, the income is the 
property itself." — Hamilton's Works, vol. Hi, p. 523. 

As in theory all citizens ought to contribute in propor- 
tion to their revenue to the support of the Government 
under which they have chosen to live and to which they 
look for protection in respect to their persons and prop- 
erty, the exemption of any from an income tax can only 
be justified on the assumption of the non-receipt by the 
citizen of an income beyond what is necessary to defray 
the expenses of a moderate living. In truth, any exemp- 
tion under a general income tax is in principle an act of 
charity on the part of the Government. It is interest- 
ing, therefore, to note where the authors or special advo- 
cates of the income tax of 1884 proposed to draw the 
line in respect to charity and as to the amount of property 
the possession or enjoyment of which, in their opinion, con- 
stituted riches. 

If the law exempts from taxation income from prop- 
erty to the extent of $2,000, it in effect exempts property 
to the capital value of $50,000 from taxation, for at pres- 
ent four per cent is about the average profit of money, 
land, or other property, over and above all charges and 
taxes, and at that rate of profit $2,000 will be the annual 
•income value of $50,000. If, however, we assume five per 



EXEMPTION AND FAVOURITISM. 543 

cent as about the present annual average profit on money, 
land, or other property in the United States, over and 
above all charges and taxes, then an exemption of $4,000, 
the rate fixed upon in the income-tax act of 1884, would 
represent an accumulation, or business, or profession, of 
the value of $80,000. If we take the rate at which the 
United States can borrow money — namely, three per cent 
— then an exemption of $4,000 would represent an accu- 
mulation of a citizen, invested in United States securities, 
of $133,333 -{-. And, according to any fair interpretation 
of the action of the committee which reported in 1894 a 
$4,000 exemption, a citizen who is worth less than $80,000 
of ordinary property yielding income, or $133,000 of prop- 
erty invested in United States bonds, was a legitimate 
object for national charity; the above sums representing 
the dividing line in the United States between those who 
were entitled to be regarded as poor and those who were 
entitled to be considered rich. Such an assumption finds 
no precedent in fiscal history, and was an unwarranted 
favouritism to nine tenths of the well-to-do people of the 
country, who were abundantly able to pay any just pro- 
portion of the taxes which the Government then consid- 
ered it necessary to impose for its support. Under such 
circumstances it would be a misnomer to call such an 
extortion taxation. It was unmasked confiscation and a 
burlesque on taxation. In the case of the income tax of 
1868, when the amount of exemption was $1,000, experi- 
ence demonstrated that more than nine tenths of the entire 
property of the country, and more than ninety-nine hun- 
dredths of its property owners, escaped payment from this 
form of taxation. 

Again, an income tax which exempts $4,000 of income 
in the United States can not be defended by any rational 
rule or doctrine, legal or economic, for the property and 
income exempted would be infinitely greater in the aggre- 
gate than the property and the income of the same class 
made subject to the tax. Under this form of an income 
tax there could be no equality between taxed-producers 
and non-taxed-producers, and more especially as the non- 
taxed-producers will be the most numerous and the great- 
est producers in quantity as a body. 

No man is a freeman whose industry and capital are 



544 THE THEORY AND PRACTICE OF TAXATION. 

subject to exaction, and from which his immediate com- 
petitors are entirely exempt. Equality of taxation of all 
persons and property brought into open competition under 
like circumstances is necessary to produce equality of con- 
dition for all, in all production and in all the enjoyments 
of life, liberty, and property; and government, whatever 
name it may assume, is a despotism, and commits acts 
of flagrant spoliation, if it grants exemption or exacts a 
greater or less rate of tax from one man than from another 
man, on account of the one owning or having in his pos- 
session more or less of the same class of property which 
is subject to the tax. If it were proposed to levy a tax 
of five per cent on annual incomes below $4,000 in amount, 
and exempt all incomes above this sum, the unequal and 
discriminating character of the exemption would be at 
once apparent; and yet an income tax exempting all in- 
comes below $4,000 is equally unjust and discriminating. 
In either case the exemption can not be founded or de- 
fended on any sound principles of free constitutional gov- 
ernment; and is simply a manifestation of tyrannical 
power, under whatever form of government it may be 
enforced. The great republican principle of equality be- 
fore the law, and constitutional law itself, alike preclude 
any exemption of income derived from like property. 

M. Thiers, in his work on the Rights of Property, thus 
forcibly condemns confiscation under the name or form 
of a graduated income tax : " Proportionality/' he says, 
" is a principle, but progression is a hateful despotism. 
... To exact a tenth from one, a fifth from another, 
and a third from another is pure despotism — it is rob- 
bery." 

Finally, the principle involved in this question of dis- 
criminating income taxation is one that affects the founda- 
tion and continued existence of every free government — 
namely, the equality of all men before the law. Any ex- 
emption whatever, under an income tax, be it small or 
great, except to the absolutely indigent, is purely arbi- 
trary; and the principle once allowed may be carried to 
any extent. Any exemption of any portion of the same 
class of property or incomes is an act of charity which 
every patriotic American citizen ought to reject upon 
principle and with scorn, except under circumstances of 



INCOME TAX IN THE UNITED STATES. 545 

great want and destitution. Equality and manhood, there- 
fore, demand and require uniformity of burden in what- 
ever is the subject of taxation. 

The Inception or Origin of the Income Tax in 
the United States. — The subject of taxation in the new 
Government which it was proposed to establish in place 
of the colonial system which the Eevolution had sup- 
planted, constituted one of the most important and salient 
points of interest in the convention which framed the Con- 
stitution of the United States, and was the cause of much 
difference of opinion among its members and earnest con- 
tention between the States. The great source of weakness 
of the Confederation was its inability to levy taxes of any 
kind for the support of its Government. To raise revenue 
it was obliged to make requisitions upon the States which 
were respected or disregarded at their pleasure. Great em- 
barrassments followed the consequent inability to obtain 
the necessary funds to carry on the Government. One of 
the principal objects of the proposed new Government was 
to obviate this defect of the Confederacy by conferring au- 
thority upon the new Government by which taxes could 
be directly laid whenever desired. Great difficulty in ac- 
complishing this object was found to exist. The seaboard 
States were unwilling to give up their right to lay duties 
upon imports, which were their chief source of revenue. 
The inland States, on the other hand, were unwilling to 
make any agreement for the levying of taxes directly upon 
real and personal property, the smaller States fearing that 
they would be overborne by unequal burdens forced upon 
them by the action of the larger States. In this condition 
of things great embarrassment was felt by the members 
of the convention. It was feared at times that the effort 
to form a new Government would fail. But happily a 
compromise was effected by an agreement that direct taxes 
should be levied by Congress by apportioning them among 
the States according to their representation. In return 
for this concession by some of the States, the other States 
bordering on navigable waters consented to relinquish to 
the new Government the control of duties, imposts, and 
excises, and the regulation of commerce, with the con- 
dition that the duties, imposts, and excises should be uni- 
form throughout the United States; so that, on the one 



546 THE THEORY AND PRACTICE OF TAXATION. 

hand, anything like oppression or undue advantage of any 
one State over the others would be prevented by the appor- 
tionment of the direct taxes among the States according 
to their representation; and, on the other hand, anything 
like oppression or hardship in the levying of duties, im- 
posts, and excises would be avoided by the provision that 
they should be uniform throughout the United States. 

The Federal Constitution accordingly upon completion 
divided the taxes that Congress might impose under it 
into two classes : those which are direct and those which 
are indirect, or, as the letter of the Constitution expresses 
it, " duties, imposts, and excises." It also provides that 
the former shall be apportioned, equally with representa- 
tion in Congress, among the several States of the Union, 
according to their respective numbers, that " no capita- 
tion or direct taxes shall be laid unless in proportion 
to the census " ; and that the latter class of taxes shall be 
" uniform throughout the United States." 

But from the beginning of the Federal Government 
the determination of the exact legal meaning of the word 
" direct " as applied in the Constitution to taxation has 
been one of great difficulty and embarrassment, although 
the doctrine in England and her colonies, before the adop- 
tion of the Constitution, was a favourite one, that " taxa- 
tion and representation should go together." * 

* The framers of the Constitution intended that the appor- 
tionment of direct taxes among the States should be in more exact 
ratio to the population even than it is possible to apportion the 
representation. For example: Suppose one representative to every 
ninety thousand inhabitants, a State might have a large fraction 
left over; but the apportionment of direct taxes was designed to 
be with mathematical accuracy to the precise number of persons 
ascertained by the census. After the first apportionment of repre- 
sentatives had been made in the Federal Convention by estimated 
population, before an actual census, it was held that the estimate 
of the population of the different States was not sufficiently accu- 
rate for the apportionment of a direct tax ; and that, consequently, 
the General Government could not lay a direct tax until a census 
should have been taken. Elbridge Gerry, of Massachusetts, moved 
that until a census be taken direct taxation be apportioned to the 
number of representatives. Mr. Carroll, of Maryland, replied that 
" the number of representatives did not admit of a proportion exact 
enough for a ride of taxation" (Elliot's Debates, v, 451). Mr. 
Ellsworth " thought such a rule unjust. There was a great differ- 
ence between the number of inhabitants, as a rule, in this case. 



MEANING OF DIRECT TAX. 547 

All historical data explanatory of the constitutional 
meaning of the term " direct " have been of an indirect 
character, and so imperfect that the court has heretofore 
apparently not regarded them as worthy of consideration. 
But this condition of things no longer exists; for in the 
brief submitted to, and in the argument made before the 
United States Supreme Court adverse to the constitu- 
tionality of the provisions of the income-tax enactment 
of August, 1894, by Hon. Clarence A. Seward, a depart- 
ment of national history which no historian or jurist had 
ever before completely exploited, was so traversed by him 
that it is difficult to see how any one can acquaint himself 

Even if the former were proportioned as nearly as possible to the 
latter, it would be a very inaccurate rule. A State might have 
one representative only, that had inhabitants enough for one and 
a half or more, if fractions could be applied" (ibid., 453). Mr. 
Gerry's motion was defeated. The convention, after debate, de- 
cided that direct taxes must be apportioned in the States in more 
exact ratio to the population than the representatives could pos- 
sibly be apportioned (Elliot, v, 453). 

Many of the leading patriots of the Revolution — Patrick Henry 
among them — were distrustful of granting this power, even with 
the restriction placed upon its exercise. Massachusetts accompanied 
her adoption of the Constitution with a resolution, signed by John 
Hancock, recommending an amendment of the Constitution which 
should prohibit Congress from levying a direct tax until they 
should first have made a requisition on the States (I Elliot, 323). 
The same amendment, word for word, was recommended by the 
State of New York and the State of North Carolina, and similar 
resolutions were adopted by South Carolina, Rhode Island, and 
Virginia. 
^c In the apportionment of the direct taxes which had been laid 
by Congress previous to the income tax the ratio to the census was 
preserved with scrupulous accuracy, and the actual use of the 
authority up to the time of the imposition of the income tax was 
in accordance with the understanding of the framers of the Con- 
stitution. 

Mr. Madison, who was probably the most active participant and 
member in the convention that framed the Constitution of the 
United States, in a letter written after the adoption of the Con- 
stitution but before the organization of the new Government, and 
never discovered and its contents made public until 1895, embodies 
much new information in regard to the intent and purpose of the 
term " direct " taxes as used in the Constitution and in regard to 
the understanding of the people of the United States concerning 
that term when they adopted the Constitution. It shows, what is 
extraordinary, " that the term, in the estimation of the men who 
used it, did not refer to the kind, or character, or nature of the tax 



548 THE THEORY AND PRACTICE OP TAXATION. 

with its results and doubt that, although the framers of 
the Constitution and the people they represented might 
not fully agree as to a full and comprehensive definition 
of a direct tax, there was apparently a perfect unanimity 
of opinion among them that an income tax was a typical 
example of that kind of taxation. 

Previous to the adoption of the Constitution there were 
no Federal taxes, and all precedents for helping to a cor- 
rect determination of the constitutional meaning of direct- 
taxation must therefore be drawn from the prior experi- 
ence of the several States. 

What was that experience? Recent historical research 

itself, and that the framers of the Constitution never considered 
the subject of taxation from the philosophical or politico-economic 
point of view, but were wrestling with the stern necessities of the 
question, How shall the people of these several States be induced to 
pay a Federal tax? 

" Manifestly, it could be raised by but one of two methods : 
either indirectly, by ' requisitions ' on the several States, as under 
the still existing Confederacy, or by taxes laid directly by the 
Federal Government. Duties and excises were not indirect taxes; 
they were not under discussion or consideration; they were not 
in the case at all. Indirect taxes were taxes procured indirectly by 
'requisitions' on the States; direct taxes were taxes laid directly by 
the Federal Government. The framers of the Constitution evidently 
had never looked at the subject from a politico-economic point of 
view; they had never given a thought to the philosophy of taxa- 
tion ; the term ' direct taxes,' as they used it, did not refer to the 
kind or character or nature of the tax, but to the fact that such 
taxes were no longer to be laid indirectly through ' requisitions ' 
upon the States, but directly upon the taxpayer by the newly 
constituted taxing power. Indirect taxes would be a thing of the 
past, of the expiring Confederation; taxes directly laid by the 
future Government would supply its extraordinary revenue when 
needed. 

" But here State jealousy had entered into the problem which 
the framers were solving — the difficult problem of taking power 
from the individual States and transferring it to this new, un- 
known, and distant central authority. If Congress could lay a tax 
directly upon the property of the citizens of all the States, might it 
not be so laid that the citizens of Virginia would have to pay more 
than the citizens of New York? How should the power so trans- 
ferred be restrained? 

" The convention answered the question by the word popula- 
tion. The new power of direct taxation should be given to Con- 
gress, but the system of quotas, with which the people of the 
country were familiar, should be retained." — New York Nation. 

For some further discussion of this question see ante, p. 357. 



APPORTIONMENT. 549 

shows that Massachusetts had taxed incomes for more 
than a hundred years prior to the assembling of the Con- 
stitutional Convention; other of the leading States were 
imposing like taxes at or about 1787, and the receipts 
therefrom were used to help pay the quotas demanded by 
the then Government of the Confederation for the main- 
tenance of the Federal G-overnment. The income tax so 
paid, and all the other internal taxes collected by the 
States, were known as and called direct taxes and are so 
called to-day. 

The Constitutional Convention empowered Congress 
to levy any of the authorized forms of taxation on the 
States; but the levy of direct taxes was guarded by a 
provision that such taxes should be apportioned to the 
population. The explanation of this curious anomaly is 
that the consensus of opinion in the convention was that 
wealth at that period was so equitably divided among the 
people of the States that population was the best measure 
of wealth and consequently of equitable taxation. But 
what would become of the element of equality if the levy 
was in the form of indirect taxes — duties, imposts, and 
excises — which, falling on the consumption of tea, coffee, 
sugar, spirits, and the like, leave it optional with the citi- 
zen in a great degree whether he will pay or not ? Hamil- 
ton certainly thought that the door had been effectually 
closed against the possibility of any such evasion, for, 
when speaking of direct taxes in The Federalist, he says: 
" An actual census or enumeration of the people must 
furnish the rule; a circumstance which effectually shuts 
the door to partiality or evasion." 

But any doubt on this subject ought no longer to be 
tolerated, for we now have, almost for the first time, a 
definition of or distinction between direct and indirect 
taxes that is founded on sound philosophy and large ex- 
^ perience, and can not be refuted — namely, a direct tax 
has always in it an element of compulsion. The person 
against whom or on whose property or income a direct tax 
is levied has no option whether or when he shall pay. 
' There is nothing voluntary about it. On the other hand, 
an indirect tax, whoever may first advance it, is paid volun- 
tarily, and primarily by the consumer of the taxed article. 

But the most important and vital issue involved in 



550 THE THEORY AND PRACTICE OF TAXATION. 

the income tax enacted 1894 (August 18th) was that it 
designedly provided for discriminating taxation, and this 
fact may be best demonstrated and brought to popular 
comprehension in the following manner: In a recent in- 
terview (1895) with a leading British parliamentary au- 
thority, the conversation turned on the new and unprece- 
dented discriminating rates in the legacy and succession 
taxes imposed by the present British Parliament, and the 
opinion of the writer was asked respecting them. He re- 
turned, offhand, the answer that he could only discuss 
them from a British point of view, for, under the Consti- 
tution of the United States, such taxes could not be levied 
by the Federal Government, contemporaneously. And 
how promptly foreign authorities recognise the truth of 
this position is shown by the following extract from an edi- 
torial in the London Times on the phase of the income 
statute then before the United States Supreme Court: 
" Were we," it said, " under the United States Constitu- 
tion, Sir William Harcourt's budget would have been de- 
clared unconstitutional. Populist leaders in America must 
envy us the freedom of dealing with other people's property, 
enjoyed in this motherland of liberty/' This conversation 
led to a historical investigation, and the recognition of 
what seemed to be a fact little or not before noted, that 
the United States is the only nation that now exists or 
ever has existed which, through constitutional or other 
provisions, has, or has had, any limitations on its Gov- 
ernment in respect to the general exercise or extent of 
the power of taxation. If there are any exceptions, they 
are to be found in the legislative enactments of the French 
National Assembly of 1789, and possibly in what is now 
known as the referendum system of Switzerland. 

But a government that has no limitations on its power 
of taxation, that can arbitrarily take in whatever manner, 
to whatever extent, and at whatever time it pleases, the 
property of its people or subjects, whether that right exists 
in theory, as in England, or in actual practice, as in Ger- 
many, Austria, and Eussia, is a despotism. If this as- 
sumption and reasoning may seem to any one extrava- 
gant and unwarranted, his attention is respectfully asked 
to the following expression of opinion on this subject by 
the United States Supreme Court, as given through Jus- 



CLASS LEGISLATION. 551 

tice Miller in the celebrated " Loan Association vs. To- 
peka" case (20 Wallace, 665) : 

" It must be conceded that there are rights in every 
free government beyond the control of the State. A gov- 
ernment which recognised no such rights, which held the 
lives, the liberty, and the property of its citizens subject 
at all times to the absolute disposition and unbounded- 
control of even the most democratic depository of power, 
is after all but a despotism. It is true it is a despotism 
of the many — of the majority, if you choose to call it so — 
but it is none the less a despotism." 

And yet can there be an}' doubt that the American 
people would have abandoned their proud historical posi- 
tion if the Supreme Court had decided in 1895 that the 
income-tax enactment of 1894 was constitutional? 

For such a decision would practically have removed 
any constitutional limitation on the exercise of the power 
of taxation by Congress, and in this way : First, by estab- 
lishing that an income tax is not a direct tax, there can 
be practically thereafter no direct taxes to which the con- 
stitutional mandate of apportionment will apply, for 
popular sentiment will never sanction the enactment of a 
general " capitation " or " poll " tax, or a direct tax on 
land. 

Then it certainly could not be unconstitutional to multi- 
ply classes for taxation according to wealth and increase 
the rate up to the point of confiscation. Can any one, 
furthermore, doubt that the primary object of the enact- 
ment proposed in 1894 was not the raising of revenue for 
the national Treasury, but rather to permit a part of 
the people of the country to impose discriminating taxes 
on the people of another part, and then fixing a general 
exemption at so high a rate that those of the first part, 
who are entirely able, should not be required to pay any- 
thing? If this exemption, in place of $4,000, had been 
fixed only to include the average annual wages or earn- 
ings of the working masses of the country, is it probable 
that Congress would have even considered the enactment 
of the income tax of 1894? Even before the form of the 
statute of 1894 was reported from the proper committee, 
speculation was indulged in to the effect that the con- 
stituents of certain districts would not have to pay any- 



552 THE THEORY AND PRACTICE OF TAXATION. 

thing in the way of income taxes under it. That the Gov- 
ernment also practically conceded that the income-tax 
enactment of 1894 was pre-eminently class legislation is 
also evident from the following extract from a statement 
made in a brief by the Attorney General of the United 
States pending the consideration of the income-tax ques- 
tion by the United States Supreme Court : * " Congress/' 
he said, " has adopted as the minimum income for the 
purpose of taxation the limit of four thousand dollars. 
This limit may be said to divide the upper from the lower 
middle class, financially speaking, in the larger cities, or to 
divide the middle class from the wealthy in the country 
districts." f 

Attention is next asked to what seems to be by far the 
most serious point in this whole matter, and which has 
not as yet attracted public attention in any marked degree. 
The American people have been trying an experiment as a 
nation which has never before been attempted by any other 
nation — namely, that of universal suffrage, by which the 
power to elect legislators and shape the policy of the Gov- 
ernment has been put under the control of those who, 
through no fault of their own, have not enjoyed such edu- 
cational facilities as will enable them independently to 
form correct opinions on great constitutional, legal, finan- 
cial, or economic questions, thereby creating almost end- 
less possibilities for injudicious legislation. How such 
possibilities were being made actualities in the case of the 
income-tax statute of 1894 can be made evident to almost 
any one who makes himself fully acquainted with the cir- 



* By an enactment of Congress, August 18, 1894, establishing an 
income tax for the United States, a tax of two per cent was imposed 
on the gains, profits, and incomes of persons derived from any kind 
of property, including rent and the growth and produce of lands, 
and profits made upon the sale of land if purchased within two 
years. Every element that could make real or personal property 
a source of value to an owner was taxed. An excise duty was 
also imposed upon income derived from any profession, trade, em- 
ployment, or avocation. The tax upon persons generally was not 
upon their entire income, but on the excess over and above the 
sum of four thousand dollars. All persons having incomes of four 
thousand dollars or under were exempt. 

t Opening argument by William D. Guthrie, in support of the 
contention that the income-tax law of 1894 was unconstitutional. 



SUFFRAGE AND TAXATION. 553 

cumstances attendant on its inception and almost concur- 
rent legal adjudications and contentions. 

The members of the convention that framed the Con- 
stitution of the United States had the very questions be- 
fore them that have already been in issue before the Ameri- 
can people, and may at no distant day be again presented 
for their serious consideration. It was inequalities in 
methods and facilities for the raising of revenue among the 
States of the Confederation for the support of the Federal 
Government that threatened the existence of the Confed- 
eration and necessitated the assemblage of the Constitu- 
tional Convention. And the members of this convention, 
taught by experience, incorporated in their work the pro- 
visions respecting the exercise of the power of taxation, 
the meaning and validity of which are now called in ques- 
tion. And in so doing they gave to the people of the 
United States an instrument of which one great feature, 
if not its chief feature, and one not recognised as it ought 
to be, is that it guards the rights of minorities as no other 
governmental instrument devised by mortal man ever has 
done. As long as this great feature is preserved intact 
and the nation adds to it another principle, that every 
question of doubt concerning it shall be always deter- 
mined in a way to strengthen it, the perpetuity of the pres- 
ent G-overnment is assured. But if now the Supreme 
Court invalidates this great feature by nullifying the man- 
date of the Constitution, and thereby practically removes 
all limitations on the power of Congress to impose taxes, 
sanctions discriminating taxation and disregards the 
rights of minorities, the hour when this Government enters 
upon the path of decadence will have struck. How puerile 
it is for any one to favour such a decision and its inevitable 
results, on the ground that a contrary decision would 
oblige the Government to repay to the people a large sum 
of money that it had illegally collected from them ! This 
would, however, have one recommendation — namely, that 
it would approximately solve the difficult question, How 
much, in terms of money, is the existing Government 
worth ? 

Conclusion. — The following extract, incorporated by 
Mr. Justice Field in his opinion, delivered in concurrence 
with a majority of his colleagues, and adverse to the con- 
36 



554 THE THEOKY AND PRACTICE OF TAXATION. 

stitutionality of the income-tax statute of 1894, which 
imposed discriminating taxes on the American people, 
is also pre-eminently worthy of notice in connection with 
any general history or review of this great subject : 

" Here I close. I could not say less in view of questions 
of such gravity that go down to the very foundation of 
the Government. If the provisions of the Constitution 
can be set aside by an act of Congress, where is the course 
of usurpation to end? The present assault upon capital 
is but the beginning. It will be but the stepping-stone 
to others, larger and more sweeping, till our political con- 
tests will become a war of the poor against the rich — a war 
constantly growing in intensity and bitterness. ' If the 
court sanctions the power of discriminating taxation, and 
nullifies the uniformity mandate of the Constitution/ as 
said by one who has been all his life a student of our insti- 
tutions, ' it will mark the hour when the sure decadence 
of our present Government will commence.' If the purely 
arbitrary limitation of four thousand dollars in the pres- 
ent law can be sustained, none having less than that 
amount of property being assessed or taxed for the sup- 
port of the Government, the limitation of future Con- 
gresses may be fixed at a much larger sum, at five or ten 
or twenty thousand dollars, parties possessing that amount 
alone being bound to bear the burdens of government ; or 
the limitation may be designated at such an amount as 
a board of walking delegates may deem necessary. There 
is no safety in allowing the limitation to be adjusted ex- 
cept in strict compliance with the mandates of the Con- 
stitution which require its taxation to be uniform in oper- 
ation and, so far as practicable, in proportion to their 
property, equal upon all citizens. Unless the rule of the 
Constitution governs, a majority may fix the limitation 
at such rate as will not include any of their own number. 

" Cooley, in his Treatise on Taxation (second edition, 
215), justly observes that ' it is difficult to conceive of 
a justifiable exemption law which should select single in- 
dividuals or corporations, or single articles of property, 
and, taking them out of the class to which they belong, 
make them the subject of capricious legislative favour. 
Such favouritism could make no pretence to equality; it 
would lack the substance of legitimate tax legislation.' 



DISCRIMINATION CONDEMNED. 555 

" The income-tax law under consideration is marked 
by discriminating features which affect the whole law. It 
discriminates between those who receive an income of four 
thousand dollars and those who do not. It thus vitiates, 
in my judgment, by this arbitrary discrimination, the 
whole legislation. Hamilton says in one of his papers 
(The Continentalist) : ' The genius of liberty repudiates 
everything arbitrary in taxation. It exacts that every 
man, by a definite and general rule, shall know what pro- 
portion of his property the State demands. Whatever 
liberty we may boast of in theory, it can not exist in fact 
while [arbitrary] assessments continue/ The legislation, 
in the discrimination it makes, is class legislation. When- 
ever a distinction is made in the burdens a law imposes or 
in the benefits it confers on any citizens by reason of 
their birth, or wealth, or religion, it is class legislation, 
and leads inevitably to oppression and abuses, and to gen- 
eral unrest and disturbance in society. It was hoped and 
believed that the great amendments to the Constitution 
which followed the late civil war had rendered such legis- 
lation impossible for all future time. But the objection- 
able legislation reappears in the act under consideration. 
It is the same in essential character as that of the English 
income statute of 1691, which taxed Protestants at a cer- 
tain rate, Catholics, as a class, at double the rate of Protes- 
tants, and Jews at another and separate rate. Under 
wise and constitutional legislation every citizen should 
contribute his proportion, however small the sum, to the 
support of the Government, and it is no kindness to urge 
any of our citizens to escape from that obligation. If he 
contributes the smallest mite of his earnings to that pur- 
pose he will have a greater regard for the Government and 
more self-respect for himself, feeling that, though he is 
poor in fact, he is not a pauper of his Government. And 
it is to be hoped that, whatever woes and embarrassments 
may betide our people, they may never lose their manliness 
and self-respect. Those qualities preserved, they will ulti- 
mately triumph over all reverses of fortune." 



CHAPTER XXV. 

WHAT SHOULD BE TAXED, AND HOW IT SHOULD BE TAXED. 

Some years since (1873) a citizen of Tennessee, Mr. 
Enoch Ensley, making no pretence of scholastic learning 
or private interests,- but earnestly desiring the material 
development of his section of the country (Tennessee), 
and that it should not be retarded by the adoption of an 
unsound system of State or municipal taxation, published 
in the form of a letter addressed to the Governor of the 
State a little pamphlet entitled What should be Taxed, 
and How it should be Taxed, which set forth certain 
fundamental propositions in respect to local taxation, 
and supported them with such homely and clear illustra- 
tions as to entitle the essay to a permanent place in eco- 
nomic and legal literature. 

Mr. Ensley commences by proposing the following rule 
or maxim as the basis for a State (Tennessee), city, or 
county system of taxation: 

" Never tax anything that would be of value to 
your State, that could and would run away, or that 
could and would come to you." 

Mr. Ensley then lays down the proposition that prop- 
erty naturally divides itself into two classes — movable and 
immovable; that the former, as its name implies, can be 
moved from one place to another as its owner chooses, 
while the latter is fixed and can not budge an inch, no 
matter what its owner chooses. " I hold it to be true that 
immovable property has no value till it is occupied or 
located upon, or brought to subsist or employ, movable 
property; and, as a rule, the more it employs or subsists, 
the more valuable it becomes; and the greater the induce- 
ments or attractions it offers movable property, the more 
it will have to locate upon it " ; citing in proof and illus- 
556 



MOVABLE AND IMMOVABLE PROPERTY. 557 

tration the fact that the best acre of land in America is 
worth nothing till man goes upon it with his axe, horse, 
cow, etc., and puts it in cultivation and brings it to sub- 
sist himself, horse, cow, etc. ; and from that moment it 
commences to have a value, by reason of the fact that it 
employs or subsists the man (who, if he can be called 
property at all, is certainly movable property) as well as 
the horse, cow, etc. And if this acre of ground for any 
cause should become attractive to and employ double the 
amount of movable property, it will as a general rule be- 
come doubly valuable; and so on, if it should become at- 
tractive to and employ profitably ten or a hundred or a 
thousand fold more movable property, it would become in 
like ratio more valuable, even up to the value of millions 
of dollars per acre, by reason of the fact that it offers 
attractions, and has employed upon it profitably five, ten, 
or fifteen millions of dollars' worth of movable property. 
Of course, when ground gets beyond a certain value it 
must be put to other uses than agriculture, and just this 
process acres of ground have doubtless passed through 
since the Dutch first landed on Manhattan Island. 

There are exceptions to this rule — that immovable 
property is valuable as it has movable property employed 
directly on it — for it frequently has a greater value than 
movable property employed directly on it would warrant. 
It has a value reflected from the employment of movable 
property employed on immovable property near by, as 
in the case of residences in or near cities. For instance, 
the use of movable property on a Broadway lot gives a 
great value to the merchant's residence up town, by reason 
of the fact that it is sufficiently near and convenient for 
it to be in demand for the transaction of business daily 
at his store, all of which is attributable to the employ- 
ment of movable property at the store. 

The thrift or profit which immovable property offers 
to movable property helps to regulate its value. For in- 
stance, a man owns two pieces of property alike, say in 
different towns, rented out to merchants of equal capital ; 
one is enabled to make seven per cent per annum only on 
his capital, for the reason that he has to pay three per 
cent tax on his capital, and the other makes ten per cent 
net, and pays no tax. The property paying ten per cent 



558 THE THEORY AND PRACTICE OF TAXATION. 

will be the most valuable, for it will pay the largest rent, 
because there will be more applicants for it than for the 
seven per cent ; and the law of supply and demand govern- 
ing, it must rent for more. It is, however, impossible, 
as a general thing, for these two merchants to remain of 
equal capital. The ten-per-cent man will soon have more 
capital, from his extra thrift ; and the seven-per-cent man, 
seeing his prosperity, is apt to pull up stakes and quit 
his town, and move to the ten-per-cent town; and other 
merchants will perhaps do the same thing, until, by com- 
petition increasing in the one town by other merchants 
coming in, and decreasing in the other by their going out, 
profits may be made the same. This, however, is not apt 
to make profits the same in a country like ours, for there 
is generally new trade to be looked up to keep pace with 
the newcomers. So the result would be that the new- 
comers would continue to go to the ten-per-cent town 
from the seven-per-cent town and other places, till the 
one becomes a large and prosperous city, and the other a 
dilapidated, languishing town. It will be easy then to 
say which storehouse is the most valuable. 

In this there is little of novelty; but in the homely, 
clear illustrations which Mr. Ensley employed for im- 
pressing his fellow-citizens with the truth of his proposi- 
tions, novelty is not wanting. Thus, for example, he 
says: 

" I hold that, of all men, the real-estate, or fixed-prop- 
erty man, is most interested in the rule or motto I have 
adopted. To illustrate, I will say that there is an acre 
of ground in the city of Memphis, Tennessee, say in front 
of the Overton Block, that is worth at the rate of two hun- 
dred thousand dollars per acre, while the writer has an 
acre six miles below the city, quite as good naturally, and 
even better than the Overton Block acre, because it will 
produce more corn, cotton, pumpkins, peas, potatoes, cab- 
bage, etc., than the Overton acre will, or ever would, and 
my acre is not worth one hundred dollars per acre. Now 
why is it that the Overton acre is worth two hundred 
thousand dollars per acre, and mine not worth one hun- 
dred dollars ? The reason is that there is employed on the 
Overton acre, profitably, two, three, four, or five hundred 
thousand dollars of movable property, while upon mine 



VALUE OF LAND. 559 

there is employed the sixteenth part of a negro, the six- 
teenth part of a mule, plough, hoe, etc. Now, if you will 
manage in any way, either by taxation or otherwise, to 
drive from this Overton acre the two, three, four, or five 
hundred thousand dollars, and affect the Overton acre so 
that this capital, or any part of it, can not be employed 
on it with a profit, it will not be worth more than my 
acre — in fact, not so much, for there is nothing so value- 
less as ground covered with houses, when there is no de- 
mand for said houses. And, further, if you do anything 
to make the two, three, four, or five hundred thousand 
dollars pay less profit, you will damage the ground, or 
lessen its value, more rapidly than you will decrease the 
profits — not in the same ratio, but more rapidly. Sup- 
pose, for instance, the profit has been ten per cent net on 
the capital employed, and the property is paying a rental 
on three hundred thousand dollars; if you reduce the 
profits permanently, in any way, to five per cent net, the 
property would not pay a rental on one hundred and fifty 
thousand; in fact, it would hardly pay any rent at all, 
for five per cent would be too small to induce a business, 
at all in this country." 

" Movable property always seeks and locates on im- 
movable property where it thrives and multiplies most 
rapidly. A spot of ground, a city, a county, a State, or 
even a nation, that offers the greatest thrift, will be sought 
and located upon by the greatest quantity of it, and the 
greater the quantity the more value and thrift will the 
land have. Any tax levied upon it lessens its thrift, and 
consequently is in violation of the correct principle; 
though it may not be enough to perceptibly affect it, yet 
it will have some effect. Though it may not drive any 
away, yet it will, to some extent, keep other movable prop- 
erty from coming." 

" It is said that it was the last feather that broke the 
camel's back, while the first had as much to do with it 
as the last. An oppressive tax, such as exists in some 
parts of our State, drives off a good deal of movable prop- 
erty, and absolutely forbids any more coming to such 
parts, unless it comes relying upon dodging or evading 
the law, which large capital never does. Men of small 
amounts of money, goods, etc., such as one can hide, may 



560 THE THEORY AND PRACTICE OF TAXATION. 

come ; but men of large amounts of money, to go into open 
banking, or merchandising, on a scale that can not be 
hidden, or evade the law, will not come. 

" Here I wish to state a truism which, perhaps, many 
owners of real estate may never have thought of. It is 
this, to wit : The renter or lessee of real estate must always 
prosper before the owner of the real estate can expect to 
prosper. This is certainly true as a rule, when taken for 
a series of years, in a country like ours, where land is 
abundant, and the people free to go where they please. 
This will apply to all real estate, whether farms, store- 
houses, shops, or other kinds of realty. I don't mean he 
must have greater prosperity, but that he must prosper 
first. 

" Of course, all mankind, where they have lived for a 
time, form local and social ties, and will submit to some 
oppression, though their property be all movable, before 
they get their consent to move away ; but with the millions 
of dollars of movable property we desire to attract to us, 
no such ties exist; and if we do not offer quite as much 
thrift as other localities, and even more, when the prop- 
erty may be already located, we need not expect to attract 
it to us. But it is just as certain as that the law of 
gravity will cause the apple to fall toward the earth when 
it leaves the tree instead of toward the sky; or as that 
water will run down an incline, if we (in Tennessee) do 
offer greater attractions than other localities we will at- 
tract it toward us, and the quantity and the rapidity with 
which it will come, can and will be measured by the 
amount of thrift that is offered. It is about as impor- 
tant to induce a man, with a given amount of capital, 
to come to us, as to retain one we already have in our 
midst, with the same amount. We can not expect to 
develop a State or build up large cities rapidly from their 
present population in their natural increase, but must 
invite others, with their capital, to come and settle 
among us. 

" As I have said, any tax levied upon movable property 
lessens its thrift, and tends to drive and keep it away; 
consequently, it is incorrect in principle, while a heavy 
and oppressive tax is absolutely prohibitive and suicidal. 
Embraced in the rule I have presented in the beginning, 



CITY AND COUNTRY. 561 

never to tax anything that would be of value to your 
State, that could and would run away, or that could and 
would come to you, are two or three kinds of movable 
property which I regard as most important, and which 
I will mention — to wit, money, merchandise, and capital 
to be used in manufacturing. These pertain to cities 
mostly. There are many other kinds of property which, 
perhaps, would come under the rule, but for the present 
I will speak of these three, because through them great 
wealth generally enters the State. 

" And here I desire to call your attention to the fact 
that the great bulk of the movable property generally en- 
ters a State or nation through its cities and towns — money 
and merchandise or trade always, and capital for manu- 
facturing purposes most frequently ; and from, the cities 
and towns its beneficial effect is radiated throughout the 
State far and near, greater the nearer the city, but bene- 
ficial, to some extent, even to the utmost bounds of the 
State, particularly when we owe a common debt, as most 
of the States of the American Union do, and as our State 
of Tennessee certainly does, to the extent of over twenty 
million dollars. And here I wish to note the fact that 
there exists in Tennessee, in the minds of some of our 
farmers, or people living in the country, a prejudice 
against the cities. They imagine that the interest or pros- 
perity of the cities is entirely separate from theirs, if not 
antagonistic; and again, the people of one part of our 
State imagine their interest to be separate from other 
parts of the State, which is incorrect in toto. This idea 
or feeling has, to a great extent, been manufactured by 
demagogues or ignorant politicians, and by newspapers 
actuated by incorrect motives or ignorance of the cor- 
rect relations between cities and country, and the different 
parts of the State. This is all wrong, and the sooner the 
people turn a deaf ear to all such, the better it will be for 
all parties. There is no antagonism of interest between 
them; but, on the contrary, a unity of interest. For a 
city to grow large, rich, and prosperous within the borders 
of a State that owes a debt to be paid by all parts of the 
State in proportion to the wealth of the respective parts, 
of course can not be against the interest of any part of 
the State or country; and vice versa, for the country to 



562 THE THEORY AND PRACTICE OF TAXATION. 

become rich and prosperous, it can not well hurt the cities ; 
for East Tennessee to flourish, can not hurt Middle and 
West Tennessee, and so on. But, on the contrary, the 
prosperity of one is, and must be, advantageous to the 
other, not only so far as paying the common debt is con- 
cerned, but in divers other ways, such as the country 
patronizing the trade and manufactories of the cities, 
etc., and the cities, in return, buying what they may con- 
sume of country products from the country, and offering 
a near and convenient market for many of their products 
that can not be shipped to more distant markets, besides 
shedding or radiating an increased value on their lands 
in every direction, for miles and miles. To attempt to 
enumerate the various reciprocal advantages is useless, 
for the mind once directed to the subject, they become 
apparent by the scores. 

" And here I desire to call the attention of the farmer 
or countryman to a fact that many have never thought 
of, which may tend to abate their hostility toward the 
cities. It is this, to wit : While it is impossible for a rich 
and prosperous farming country to surround a city with- 
out contributing to the prosperity of said city, yet it is 
possible for a city to be located within the borders of a 
State and grow to be rich, prosperous, and large, and to 
add great value to the lands around and to the State, 
without receiving a corresponding value from the country 
of said State. In fact, such is always the case where the 
city is large. For instance, the great city of New York 
is not indebted to the country or farm lands of New York 
for one hundredth of her prosperity and wealth. She 
reaps her wealth not only from all the States of the Union, 
but from all the civilized parts of the world ; yet she don't 
contribute a dollar to the payment of current expenses 
and State debt of any State in the Union, or any part 
of the world, except the State of New York. She gives 
in her immense wealth to be taxed solely for the State 
of New York, thereby relieving each and every farmer in 
the State. St. Louis reaps a majoritv of her prosperity 
from other States than Missouri. New Orleans reaps 
four fifths of her prosperity from other States than 
Louisiana, and of Memphis it can be said, she has reaped 
of whatever wealth and prosperity she has, from a half 



OPPRESSIVE TAXATION OP MONEY. 563 

to two thirds of it from Arkansas, Mississippi, southern 
Missouri, and southern Kentucky; yet she does not con- 
tribute a dollar directly to the payment of current ex- 
penses or State debt of any of these States, but it is all 
taxed to supply the wants of the State of Tennessee alone. 
Nashville is similarly situated, to some extent, and per- 
haps Knoxville and Chattanooga, just to the extent that 
they may have prosperous trade beyond the State. Hence 
it will be seen that the farmers or country people should 
not be prejudiced against the cities located within their 
State, for they receive more aid from them than they give 
in return, and are consequently the gainers. So the prac- 
tical operation of large cities seems to be to receive trade, 
and become rich out of it, from other States more than 
their own, and allow their own State alone to receive the 
full benefit, as far as her demands go. This, it strikes 
me, should not be objectionable to the farmer or country- 
man, or to the State or any part of the State. Conse- 
quently, by no means should they desire any law, of any 
kind, to exist in the land, whereby the cities are oppressed 
and kept from growing, when, by its repeal or modifica- 
tion, they would not be harmed a particle, but, on the con- 
trary, be benefited. 
V " To undertake to enforce a very oppressive tax on 
money is ridiculous nonsense. It is impossible. The 
Maker of all things has forbidden it, in giving to all 
things their peculiar nature. He has forbidden an op- 
pressive tax on money, by giving it such an easy mobility 
that it can go, in a fortnight, from Tennessee almost to 
the uttermost parts of the world. And just so, to some 
extent, with other kinds of movable property. It would 
be about as wise for the Legislature to pass a law enacting 
that, from and after this date, the great bulk of the water 
of the Mississippi Eiver shall flow toward Cairo instead 
of toward New Orleans, as to enact that the great bulk 
of the money of Memphis shall pay four and a half per 
cent tax per annum. It is wise in man to deal with 
things as they are, and will be in spite of him, and not 
as he may think they should be. Don't kick against the 
pricks ! 

" Suppose that some city or town found it necessary, 
in order to pay current expenses, interest on debts, etc., 



564 THE THEORY AND PRACTICE OF TAXATION. 

to levy a tax of ten or fifteen per cent on all kinds of 
property, real, personal, and mixed, and that it was rigidly 
enforced. Does any one suppose that there would be any 
movable property there in twelve months to collect the 
tax from? No, sir; yon would hardly be able to find a 
pocket handkerchief or a pound of coffee in either of these 
cities. But all the real estate, houses, etc., would be there 
still, but without tenants, and consequently, on account 
of the high tax and want of occupants, worth nothing. 
Suppose, again, it was possible to adopt a process to make 
the real estate worth something, could it be done by run- 
ning the occupants off and receiving no rent whatever 
from it ? No ; it could only be done by adopting a process 
which would fill all of your houses with tenants, and 
secure to you a rental from them; and that could only be 
done by allowing movable property to thrive, and by at- 
tracting a sufficient amount of it. to you to occupy addi- 
tional ground, and to pay additional rental until your 
rental would be more than the tax. 

" I find, in submitting my views to intelligent men, 
that at first they oppose me, and invariably say it is right 
and just for all kinds of property to be taxed alike; they 
all receive protection from the laws alike, and of course 
they ought to pay alike. Now, this would do very well, 
and be good reasoning, if we had a Chinese wall around a 
State ; a wall that man could not scale to go out or come 
in, and no railroad could go under, through, or over; 
and then I would favour the tax of everything, for then 
it would all be fixed property; it couldn't run away or 
come to you ; but until that kind of arrangement is made 
I am not in favour of it." 

Commenting on a rate of tax of three per cent imposed 
on all property by various cities of the Southern States 
(at the time of his writing, 1873), Mr. Ensley points out 
as one result of such a policy that it offered " inducements 
to banks to carry on business with small capitals, and 
rely upon deposits for their capital; in other words, to 
undertake to do banking business without capital. A 
bank with five hundred thousand dollars capital pays fif- 
teen thousand dollars to State, county, and city, being 
five times as much as a bank with one hundred thousand 
dollars capital, when the bank with five hundred thou- 



EFFECTS OF UNEQUAL TAXATION. 565 

sand dollars capital does the State, county, and city, other- 
wise, five times as much good in the shape of assisting 
trade, manufactures, and developing the various indus- 
tries.'' 

Commenting also upon the tax rate of four and a half 
per cent imposed at that time in the city of Memphis, 
Mr. Ensley further adds : " If you will levy, enforce, and 
collect such a tax on the money, trade, etc., of the great 
city of New York, and charge no tax in Boston, Philadel- 
phia, or Baltimore, I will guarantee to transfer, in a short 
time, hundreds of millions of the trade, money, etc., of 
New York to those cities ; and, if she will continue it five 
or ten years, I will guarantee to show you, in either of 
these cities, more trade, more money, and more people 
than in New York. I will guarantee to depopulate her 
more effectually and more permanently than a plague 
ever did a city, and impoverish her more effectually than 
ever a war did. Yes, I will hurt her infinitely worse 
than a fire, that might burn every house from Castle 
Garden, from river to river, to Central Park. I will make 
it entirely safe for women and children to cross Broadway 
at City Park, Astor House, Wall Street, or elsewhere, with- 
out the protection of policemen. I will reduce the value 
of the real estate of Mr. Astor from one hundred million 
dollars (it is said to be worth one hundred million dollars) 
to twenty-five million dollars or ten million dollars, and 
perhaps even less, and the estate of every real-estate or 
immovable-property holder in the same ratio ; but I can 
not say that I will greatly injure the movable-property 
man, for he may go to Boston, Philadelphia, or Baltimore, 
and do quite as well as he did in New York city with his 
money, goods, etc. The truth is, it would entirely bank- 
rupt the great city, for the demand for immovable property 
would not be sufficient to pay a rental sufficient to pay 
the interest on her city, county, and State debt. I do 
not think these assertions on the extreme, or the pic- 
ture overdrawn. And if the picture is not overdrawn, 
and even say it is overdrawn by fifty per cent, who would 
be the injured party in New York by the enforcement 
of such a law? Would it be the great merchants who, 
for aught I know, rent their houses from Mr. Astor? 
Or would it be Mr. Astor, the great real-estate owner of 



566 THE THEORY AND PRACTICE OF TAXATION. 

New York ? In other words, would it be the movable-prop- 
erty man, with his goods, money, etc., who can take it and 
go to Boston, Philadelphia, or elsewhere, and perhaps do 
quite as good a business as he did in New York, or would 
it be the immovable-property or real-estate man, who has 
to stay where he is and pay his city and county debt, with- 
out tenants or rental from his property? Hence, I say 
that, of all the men who should object to oppressive and, 
to follow the principle, I will say any taxation at all on 
money, merchandise, or trade, manufactories, etc., it is 
the man who owns the real estate or immovable property. 
His position should be this : He should say to the thou- 
sands of men in the civilized world, with their money in 
their pockets, looking out a favourable locality to go to 
banking, merchandising, manufacturing, or farming, etc. : 
( Come, locate on me; I will not oppress you; come to me, 
for I can't go to you, and we must come together, or I 
am worth nothing; and knowing this, I will not tax you 
and oppress you. Other localities make you pay a tax; 
I will not, consequently I offer that advantage over other 
localities/ Heretofore it has been the merchant who has 
done the complaining about the tax levied on him; he is 
not the one to do it; it is the real-estate man, and the 
writer being one of those men owning real estate almost 
entirely, and not owning a dollar's worth of merchandise 
of any kind for sale, and not being a lender of money, but, 
on the contrary, a borrower, and not being a manufacturer 
of any kind, and not being the owner of machinery, except 
a steam sawmill and a steam cotton-gin establishment, 
but being what is known as a plain farmer or planter by 
profession or occupation, thinking he sees his interest 
in the system he is advocating; consequently therein is 
to be found the moving cause of this letter. 

" I contend that this system will lighten the burdens of 
taxation on real estate, and, after a very short time, the 
rate of taxation will really be less. To illustrate further, 
I will say what I said to a prominent real-estate owner in 
a conversation on this subject. He said to me: Do you 
say that such merchants or bankers shall make from ten 
to sixteen per cent on their capital, and pay no tax, and 
I make only six or eight per cent on the houses they are 
occupying, and pay all the tax? Yes, says I. You seek 



FREEDOM FROM TAX BURDENS. 567 

to tax them, and that is the reason you get no larger per 
cent on your property. Says I : If they make one hundred 
per cent per annum on their capital, you should not want 
them to pay a copper of tax. Why? Because if they 
made one hundred per cent per annum, next year you 
would have forty applicants for the house they are doing 
business in, and if you should, you would certainly get 
a full rent for it, more than the extra tax, and as only one 
of the forty could get the house, and the other thirty-nine 
would be unaccommodated, and if your tenants should 
be making this large per cent, it is reasonable to presume 
that they would be making it, or something near it, all 
over town; consequently there would be near the same 
number of applicants for every house in town ; but as only 
the present tenants or their number could be accommo- 
dated with houses, the result would be that you would 
not only get exorbitant rents for all the houses in town, 
but you would have demand for the hundreds and thou- 
sands of vacant lots throughout the city to build store- 
houses on; they would either buy them or offer you such 
enormous rents as would induce you to build them houses 
on lots that you have been paying taxes on for years, and 
received no rental from. Soon there would be houses 
going up all over the city, block after block. The brick- 
maker would have more than he could do ; the lumberman 
would have more orders than he could fill; the carpenter, 
bricklayer, stone mason, foundryman, and all descriptions 
of mechanics and labourers would have more than they 
could do, so that the builders would have to send else- 
where for mechanics, and they would come in by the thou- 
sands. All these newcomers in turn would want residences 
for their families ; and thus would bring into demand and 
make pay a rental thousands of lots that have never paid 
anything, and you give active employment to all the me- 
chanics you have, and besides bring thousands of others 
from other places. 

" Let us go a little further, and see how it affects all 
and everybody in the city. These newcomers get their 
houses, and then they want furniture, and they patronize 
your furniture man; they want a carriage or wagon for 
family uses, and they patronize your carriage man; and 
then horses, and patronize the horsemen; and then the 



568 THE THEORY AND PRACTICE OF TAXATION. 

blacksmith to shoe them; and then the retail drygoods 
houses, mantuamakers, milliners, grocery-men, butchers, 
vegetable market men, and, in short, every kind of retail 
establishment throughout the city, thereby giving vigour, 
life, and thrift to all ; and thus it would go on until, before 
you would be aware of it, you would have a city of hun- 
dreds of thousands of people, and be worth and pay a 
rental on hundreds of millions of dollars. Of course, no 
general trade would pay one hundred per cent per annum, 
but I have adopted this rate to illustrate the principle. 

" The system of non-taxation of certain kinds of mov- 
able property, which I am advocating as the correct sys- 
tem, while it is the best to be adopted in every State, yet 
it will not make a rich State out of every State, nor will 
it build up every town to be a large city, by any means. 
Thus, for instance, its application to a naturally poor 
State could not induce movable property sufficient to go 
there to make it a very rich State; still, if there is any 
way possible to develop such a State, this is the one. 

" I think I have shown beyond question that it is not 
in harmony with the interests of any one in any State to 
tax money, trade, manufactures, etc., and that, of all 
others, the owners of fixed or immovable property should 
demand that the present system be changed — that they 
should say: Don't adopt any system that has a tendency 
to drive movable property from me; but, on the contrary, 
adopt a system that will attract it — for we are worth noth- 
ing without it, and the movable-property man may go else- 
where and do quite as well." 



CHAPTER XXVI. 

THE LAW OF THE DIFFUSION OF TAXES. 

Xo attempt ought to be made to construct or formu- 
late an economically correct, equitable, and efficient system 
of taxation which does not give full consideration to the 
method or extent to which taxes diffuse themselves after 
their first incidence. On this subject there is a great differ- 
ence of opinion, which has occasioned, for more than a cen- 
tury, a vast and never-ending discussion on the part of eco- 
nomic writers. All of this discussion, however, has result- 
ed in no generally accepted practical conclusions; has been 
truthfully characterized by a leading French economist 
(M. Parieu) as marked in no small part by the " simplicity 
of ignorance," and from a somewhat complete review (re- 
cently published *) of the conflicting theories advanced by 
participants one rises with a feeling of weariness and 
disgust. 

The majority of economists, legislators, and the public 
generally incline to the opinion that taxes mainly rest 
where they are laid, and are not shifted or diffused to an 
extent that requires any recognition in the enactment of 
statutes for their assessment. Thus, a tax commission of 
Massachusetts, as the result of their investigations, ar- 
rived at the conclusion that " the tendency of taxes is that 
they must be paid by the actual persons on whom they are 
levied." But a little thought must, however, make clear 
that unless the advancement of taxes and their final and 
actual payment are one and the same thing, the Massa- 
chusetts statement is simply an evasion of the main ques- 
tion at issue, and that its authors had no intelligent con- 
ception of it. A better proposition, and one that may 

* On the Shifting and Incidence of Taxation, by Prof. Edwin 
B. Seligman, 1892. 

37 569 



570 THE THEORY AND PRACTICE OF TAXATION. 

even be regarded as an economic axiom, is that, regard- 
ing taxation as a synonym for a force, as it really is, it 
follows the natural and invariable law of all forces, and 
distributes itself in the line of least resistance. It is also 
valuable as indicating the line of inquiry most likely to 
lead to exact and practical conclusions. But beyond this 
it lacks value, inasmuch as it fails to embody any sugges- 
tions as to the best method of making the involved prin- 
ciple a basis for any general system for correct taxation; 
inasmuch as " the line of least resistance " is not a posi- 
tive factor, and may be and often is so arranged as to 
make levies on the part of the State under the name of 
taxation subservient to private rather than public inter- 
ests. Under such circumstances the question naturally 
arises, What is the best method for determining, at least, 
the approximate truth in respect to this vexed subject? 
A manifestly correct answer would be: first, to avoid at 
the outset all theoretic assumptions as a basis for reason- 
ing; second, to obtain and marshal all the facts and con- 
ditions incident to the inquiry or deducible from experi- 
ence ; third, recognise the interdependence of all such facts 
and conclusions ; fourth, be practical in the highest degree 
in accepting things as they are, and dealing with them 
as they are found; and on such a basis attention is next 
asked to the following line of investigations. 

It is essential at the outset to correct reasoning that 
the distinction between taxation and spoliation be kept 
clearly in view. That only is entitled to be called a tax 
law which levies uniformly upon all the subjects of taxa- 
tion ; which does not of itself exempt any part of the prop- 
erty of the same class which is selected to bear the primary 
burden of taxation, or by its imperfections to any extent 
permits such exemptions. All levies or assessments made 
by the State on the persons, property, or business of its 
citizens that do not conform to such conditions are spolia- 
tions, concerning which nothing but irregularity can be 
predicated ; nothing positive concerning their diffusion can 
be asserted; and the most complete collection of experi- 
ences in respect to them can not be properly dignified as 
" a science." And it may be properly claimed that from 
a non-recognition or lack of appreciation of the broad dis- 
tinction between taxation and spoliation, the disagree- 



NUMBER OF TAXPAYERS. 571 

ment among economists respecting the diffusion of taxes 
has mainly originated. 

With this premise, let us next consider what facts and 
experiences are pertinent to this subject, and available to 
assist in reaching sound conclusions ; proceeding very care- 
fully and cautiously in so doing, inasmuch as territory 
is to be entered upon that has not been generally or thor- 
oughly explored. 

The facts and experiences of first importance in such 
inquiry are that the examination of the tax rolls in any 
State, city, or municipality of the United States will show 
that surprisingly small numbers of persons primarily pay 
or advance any kind of taxes. It is not probable that more 
than one tenth of the adult population or about one twen- 
tieth of the entire population of the United States ever 
come in contact officially with a tax assessor or tax col- 
lector. It is also estimated that less than two per cent 
of the total population of the United States advance the 
entire customs and internal revenue of the Federal Govern- 
ment. 

In the investigations made in 1871, by a commission 
created by the Legislature of the State of New York to 
revise its laws relative to the assessment and collection of 
taxes, it was found that in the city of New York, out of 
a population of over one million in the above year, only 
8,920 names, or less than one per cent of this great multi- 
tude of people, had " any household furniture, money, 
goods, chattels, debts due from solvent debtors, whether 
on account of contract, note, bond, or mortgage, or any 
public stocks, or stocks in moneyed corporations, or in 
general any personal property of which the assessors could 
take cognizance for taxation " ; and further, that not over 
four per cent, or, say, forty thousand persons out of the 
million, were subject to any primary tax in respect to the 
ownership of any property whatever, real or personal; 
while only a few years subsequent, or in 1875, the regular 
tax commissioners of New York estimated that of the 
property defined and described by the laws of the State 
as personal property, an amount approximating two thou- 
sand million dollars in value was held in New York city 
alone. Later investigations show that this state of things 
has continued. Thus, in 1895, out of a population of 



572 THE THEORY AND PRACTICE OF TAXATION. 

about two million, it was estimated that only seventy-nine 
thousand, or not over four per cent of the inhabitants of 
the city, were subject to primary taxation, and that one 
half the whole amount collected in that year was paid 
by less than a thousand persons. In the city of Boston, 
where the tax laws are executed in the most arbitrary man- 
ner, the ratio of population directly assessed is somewhat 
greater, but aside from the poll tax, which is a per capita 
and not a property tax, only 7.27 per cent of residents 
paid a property tax in 1895 out of a population of 494,205. 
In one of the smaller cities of Massachusetts, where per- 
sons and property are capable of more thorough super- 
vision than larger numbers and areas — namely, the city 
of Springfield, with a population of about fifty thousand 
— the report of its tax officials shows that for the year 
1894-^95 the number of persons and corporations assessed 
on property (mainly real estate) was 7,745, or one for 
every 6.4 of its citizens, while 10,560 other citizens were 
assessed for a poll tax of two dollars only. Of the total 
amount of taxes assessed — namely, $735,948 — the above 
number, 10,560, paid only $21,120 ; and this is the experi- 
ence generally throughout the United States, as it will be 
in every country under a free popular government, where 
arbitrary inquisitions and arrests of persons and seiz- 
ures of property are not allowed, and where a soldier 
does not practically stand behind every tax assessor and 
collector. 

The time (1871) when the personal investigations 
above referred to were made was when the masses of the 
city of New York were moved with indignation at the mis- 
use and private appropriation by a few officials (Tweed 
and his associates) of the municipal revenues raised by 
taxation, under cover of instituting public improvements, 
and which finally led to their prosecution, imprisonment, 
or self-imposed exile; and the questions which naturally 
suggested themselves were: If only some forty thousand 
of the million in New York city paid the taxes, what in- 
terest had the other nine hundred and sixty thousand who 
never saw the face of a tax assessor or collector in oppos- 
ing corruption? What, in an honest administration of 
the city government, and in a reduction of taxes? Must 
it not be for the interest of the many that the expenditures 



PUBLIC INTEREST IN TAXES. 5f3 

of the State shall always be as large as possible? Must 
they not be benefited by exorbitant taxes on the owners 
of property, and a distribution of the money collected, even 
if stolen by corruptionists, but spent by them lavishly on 
enterprises that will furnish new opportunities for em- 
ployment or amusement for the masses? Clearly, so far 
as any personal experience growing out of any direct assess- 
ment and levy was concerned, ninety-six per cent of the 
population of the city had no more cause of personal griev- 
ance by reason of the unlawful taking of money from the 
city treasury than they would have had at the taking of an 
equivalent amount from the municipal treasuries of Lon- 
don, Paris, or any other city. 

The answer to these questions is to be found in the 
fact, as John Adams once remarked, that " if the Creator 
has given man a reason that is fallible, he has also im- 
pressed upon him an instinct that is sure/' And this in- 
stinct teaches the masses everywhere, though they have 
never read a book on political economy, or heard any one. 
discourse learnedly on the principles of taxation, that if 
taxes are increased, either by a lawful or unlawful expendi- 
ture of public money, they can not in any possible way 
avoid paying some portion of its increase; or, in other 
words, that increased taxes mean increased cost of living, 
through increased rents, increased price of fuel, cloth- 
ing, and provisions ; and, possibly, diminished opportunity 
to labour, through such increased cost of the products of 
labour as would limit and restrict markets or consump- 
tion. In short, that taxes inevitably fall upon them 
through the increased price of all they consume, even if 
they pay nothing to the tax collector directly. A large, 
proportion of the masses of the city of New York in 
1871-'72, who paid no taxes directly, accordingly and 
spontaneously joined hands with the comparatively few 
of their fellow-citizens who did pay in resisting extrava- 
gance and corruption.* 

* The assertion would not be warranted that the masses of 
New York were wholly unanimous in condemning Tweed, for a 
portion of them were undoubtedly well content with the situation. 
He had curried favour with the very poor and ignorant by dis- 
tributing coal and flour, and making ostentatious presents of 
money ; and these " charities " are remembered to this day in the 



574 THE THEORY AND PRACTICE OF TAXATION. 

We are thus led up and forced to the recognition of two 
propositions, or rather principles, in respect to taxation 
that can not be invalidated. The first is, that it is not 
necessary that a tax assessor or collector should personally 
assess and levy upon every citizen of a State or community 
in order that all should be compelled to contribute of his 
property for the support of such State or community; 
second, that there is an inexorable law by which every man 
must bear a portion of the burden of public expenditures, 
even though the official assessors take no direct cognizance 
of him whatever. 

The following incident may here be cited as instructive : 
In one of the recent official hearings before a legislative 
committee of one of the States, a strenuous advocate of 
the popular doctrine that there was and could be no such 
thing as equality in taxation except by rigidly taxing every- 
body directly for all his property, of every description, 
both real and personal, and that to not tax immediately 
and directly was, in at least a great degree, to exempt 
from taxation, expressed himself as entirely opposed to 
any system of restricting assessments to a comparatively 
few things, on the ground that it would be a recognition 
in the United States of a system which in Great Britain 
had ground down the masses into poverty. He, however, 
obtained some new light on the subject of non-diffusion 
by being reminded that if the masses of England had been 
grievously oppressed by taxation, it had been under a 
system of many years' standing, which never in any way 
brings the tax collector in direct contact with nineteen 
twentieths of the entire population; the customs taxes of 
Great Britain being practically levied on only four arti- 
cles — spirits, tea, coffee, and tobacco ; and the inland reve- 
nue also on practically four — spirits, beer, legacies and 
successions, and stamps (on deeds, insurance policies, bills 
of exchange, receipts, drafts, etc.). Generalizing, then, 
on the basis of so broad a fact, how illogical and unsci- 
entific was the assumption that whatever persons, prop- 
erty, or business are not taxed directly are exempt from 

poorer parts of New York city, and Tweed is esteemed by many 
as the victim of injustice, and a man who suffered because he was 
the friend of the people. 



DIFFUSION OF CUSTOMS DUTIES. 575 

taxation! — and yet the practical exemplification of such 
a system, in the case of England, was a most efficient in- 
strumentality for grinding the masses of her people down 
to poverty. 

On the other hand, to generalize from the experience 
of an individual or a class in place of that of a nation 
or community, let us take the case of a person who passes 
all the year in transitu — moving backward and forward, 
for example, in a boat on the line of the Erie Canal, or 
between the head waters of the Mississippi and its mouth ; 
a citizen of no one State, a resident in no one town, and 
buying all that he eats, drinks, and wears wherever he 
can buy cheapest. Does this man escape taxation because 
he has no permanent situs (residence as a citizen), and 
is unknown by any assessor ? If he does, then his occupa- 
tion is more profitable to the extent of the taxes he avoids 
than is that of the individual who, following analogous 
occupations, resides permanently in one location, and pays 
taxes regularly; or else some notable, easily discernible 
cause, as undue competition to obtain situations, will 
account for his exemption. 

Let us next consider how practical experience definitely 
indicates the line of least resistance, in conformity with 
which those contributions of property or service which 
the State requires its citizens to make for its support, and 
are worthy of designation as taxes, diffuse themselves. 
Let us take first that form of indirect taxation which is 
known as customs, or taxes on imports, one from which 
the Federal Government of the United States has derived 
in recent years more than half of its revenue, and Great 
Britain more than one fourth of its total receipts from 
all forms of imperial taxes. That all such taxes as a rule 
diffuse themselves, and ultimately fall upon and are paid 
by final consumers, is capable of demonstration by a great 
variety of evidence. Every remission of customs duties on 
the imports into any country of its staple articles of con- 
sumption is followed by a reduction of cost approximately 
equal to such reduction, and a consequent increase in con- 
sumption. On the other hand, nothing is better settled 
than that an increase in customs taxes on imported arti- 
cles as a rule increases prices and tends to reduce con- 
sumption. When Great Britain, in 1863, reduced her taxes 



576 THE THEORY AND PRACTICE OF TAXATION. 

(duties) on her imports of tea from Is. 5d. to Is. per 
pound, her importation of tea increased from 114,000,000 
pounds in 1862 to 139,000,000 in 1866, and her per capita 
consumption during the same period from 2.70 pounds 
to 3.42 pounds; and again, when the duty was further 
reduced in 1865 from Is. to 6d. per pound, the annual im- 
portations increased from 139,000,000 in 1866 to 209,- 
000,000 in 1881, and the per capita consumption from 
3.42 pounds to 4.58. 

When by the act of October, 1890, the tax was removed 
from the imports of crude sugars into the United States, 
the price of the same went down almost immediately to 
an equal extent in all American markets; while the con- 
sumption of sugar in the country increased from an aver- 
age of about fifty-four pounds per capita in 1890 to more 
than sixty-seven pounds in 1892. A like result has at- 
tended a similar experience in respect to this in other coun- 
tries, and especially in Great Britain. Thus, the aggre- 
gate consumption of sugar by the British people in 1844 
was returned at 237,143 tons. A reduction of taxes on 
its importation in 1864 increased its domestic use to 528,- 
919 tons; a reduction of fifty per cent on existing rates 
in 1870 made it 695,029 tons; another reduction of fifty 
per cent in 1873 carried up consumption to 779,000 tons; 
and when, in 1874, all taxes on the imports of sugar were 
abolished, the annual domestic consumption increased in 
little more than a year's period to 930,000 tons. On the 
other hand, when by the tariff act of 1890 an additional 
tax of half a cent per pound was imposed on the import 
of tin plate into the United States, tin plate went up 
to an equal extent in price all over the country; and so 
also on pearl buttons, linen goods, and other articles of 
foreign production on the importations of which the tariff 
taxes were largely increased. By the tariff act of 1890, 
also, eggs, which could formerly be imported into the 
United States free of duty, were made subject to a tax of 
five cents per dozen. Since then the price of eggs imported 
from Canada into districts of the United States within 
the same sphere of territorial competition has be&n in- 
creased to the American consumers to almost exactly the 
extent of the import tax to which they are subjected.' 
Thus, when the price of eggs was ten and a half cents 



CUSTOMS DUTIES AND PRICES. 577 

per dozen in Toronto, they were sixteen cents in Buffalo 
and sixteen and a half to seventeen cents in New York. 
Such a result would be unaccountable if the Canadian 
farmers paid the duty on eggs sent by them to the United 
States. 

It is interesting to here ask attention to the opinions 
entertained and expressed by those whose situation and ex- 
perience have qualified them to speak with authority: 
" The duty constitutes the price of the whole mass of the 
article in the market. It is substantially paid on the arti- 
cle of domestic manufacture, as well as that of foreign 
production" (John Quincy Adams). "I said it, and I 
stand by it, that as a general rule the duties paid on imports 
operate as a tax upon the consumer" (John Sherman). 
Mr. Blaine, in his Twenty Years in Congress, says, speak- 
ing of the increase of duties on imports by the tariff act of 
July 14, 1862, that it " shut out still more conclusively all 
competition from foreign fabrics. The increased cost was 
charged to the consumer." Mr. McKinley, in 1890, in a 
report introducing a bill for revision of the tariff of the 
United States, in the direction of increased rates of duties 
on imports, said it was not the intent of the bill "to further 
cut down prices," that the people were " already suffering 
from low prices," and would not be satisfied " with legisla- 
tion which will result in lower prices." In an elaborate 
opinion given by the New York Court of Appeals in 1851 
(see vol. iv, New York Eeports), in which there was no sus- 
picion of any issue of free trade or protection, the courts, in 
carefully considering the relative powers of the Legislature 
and the judiciary in respect to taxation, assumed the 
proposition that "all duties on imported goods are taxes 
on the class of consumers " to be in the nature of a self- 
evident truth or economic axiom. 

Henry Clay, in a celebrated speech in the United 
States House of Eepresentatives in 1833, in advocacy of 
a protective tariff policy, candidly admitted that " in gen- 
eral it may be taken as a rule that the duty upon an arti- 
cle forms a portion of its price." But he subsequently 
qualified such admission by claiming that it does not fol- 
low that any consequent enhancement of its price is a tax 
on consumers, inasmuch as " directly or indirectly, in one 
form or another, all consumers of protected articles, en- 



578 THE THEORY AND PRACTICE OF TAXATION. 

hanced in price/' will get an equivalent. But this may 
be equally affirmed of all necessary and equitable taxa- 
tion, and does not in any way antagonize the theory that 
the final incidence of the class of taxes under considera- 
tion falls on consumption. 

But, notwithstanding these conclusions and the incon- 
trovertible evidence by which they are supported, not a 
few persons occupying places of great legislative influ- 
ence, and no small part of the general public, hold to the 
view that taxes on imports are really in the nature of 
premiums paid by foreigners for the privilege of selling 
their goods in the markets of the importing country, and 
do not fall on its people who consume them. That means 
that if the foreigner has a yard of cloth, or other com- 
modity, which he sells at home for one dollar, and the 
United States imposes a tariff of fifty cents on it, he will 
then sell it for export to America at fifty cents. There 
is no instance mentioned in history where this has ever 
been done, but history unfortunately is rarely taken into 
account by the public in the discussion of these questions. 
In this connection the following historical incident is in- 
teresting and instructive: In 1782 an attempt by the Con- 
gress of the Confederation of the several American States 
to provide a system of revenue to defray- the general ex- 
penses of the Confederation by duties on imports, which 
then was not permissible, was blocked by the refusal of 
the State of Ehode Island to concur in it, the Legislature 
of that State unanimously rejecting the measure for three 
reasons — one of which was that it would bear hardest on 
the few commercial States, particularly Ehode Island, 
which in virtue of their relations with foreign commerce 
monopolize imports, and lightest on the agricultural 
States, that directly imported little or nothing. Congress 
appointed Alexander Hamilton to draft a reply to Ehode 
Island, and in his answer he relied mainly on what he re- 
garded as an incontrovertible fact, that duties on imports 
would not prove a charge on an importing State, but on 
the final consumers of imports, wherever they may be 
located. 

If the theory and assumption are correct that the for- 
eigner pays the protective taxes which a country levies on 
its imports, and that they do not fall upon or are not paid 



TARIFF AND THE FOREIGNER. 579 

by its people who consume them, then it must follow that 
to the extent that a country taxes its imports it lives at 
the expense of foreign nations ; and that, as Great Britain 
is the country with which the United States has the largest 
foreign trade, it must pay the largest share of the customs 
taxes of the United States, or a good share of its annual 
revenue from all sources. Attention is further asked to 
the exact practical application of this theory. Thus, the 
United States in 1895 imported $36,438,196 worth of 
woollen manufactures, on which it assessed and collected 
duties (taxes) to the amount of $20,698,264, or 56.80 
per cent of the value of such imports. Certainly this was 
a pretty heavy tax on foreign nations in respect to the 
sales of only one class of these commodities ; but it repre- 
sented but a tithe of what the tariff taxes of the United 
States, if paid by foreigners, cost them. Thus they had to 
sell their woollens to the people of the latter country at 
less than half their value in order to compensate for the 
56.8-per-cent tax. But a nation engaged in foreign trade 
can not as a rule have two prices for the product of its 
industries ; or one price for what it sells at home and 
another and different price for what it sells to foreigners. 
So the fifty-six per cent deducted from the cost of the 
woollens sold by foreigners to the United States necessarily 
had to be deducted not only from so much of their product 
consumed at home, but also from what they sent for sale 
to all foreign countries. A further practical application 
of this theory is worthy of consideration. As Great Brit- 
ain imposes no protective duties or taxes on its imports, 
it evidently can not collect anything from other nations 
by the system of taxation under consideration. On the 
other hand, the aggregate value of its exports sent to for- 
eign nations during the year 1892 was $1,135,000,000, and 
if these several nations taxed this value at the average 
rate which the United States imposed in 1894 on all its 
dutiable imports — namely, fifty per cent — Great Britain 
obviously had to pay some $557,000,000 in that year for 
the support of foreign governments; and while this has 
been the experience of Great Britain for more than forty 
years of this century, she has as a nation been increasing 
in wealth during this whole period. 

Some of the recent official experiences of the Govern- 



580 THE THEORY AND PRACTICE OF TAXATION. 

ment of the United States that are pertinent to the topic 
under consideration are sufficiently curious to make them 
worthy of an economic record. In a speech introducing 
a bill into the United States House of Representatives, 
which subsequently resulted in the tariff act of 1890, the 
then chairman of the Committee of Ways and Means laid 
down the following proposition : " The Government ought 
not to buy abroad what it can buy at home. Nor should 
it be exempted from the laws it imposes upon its citizens." 

This would seem to warrant the characterization of 
a discovery that the United States had some reliable and 
important source of revenue independent of taxation,* 
and that, by compelling the application of a part of this 
income to the payment of taxes to itself, the Government 
is placed upon an equality with the citizens. A legitimate 
criticism on this proposition is that the idea that all the 
income of the Treasury is derived from the people, and 
that to transfer portions of this income from one official 
recipient to another can have hardly any other result than 
an additional cost of bookkeeping, seems never to have 
entered the mind of the speaker. 

Again, the United States tariff act of 1883 contained 
in its free list a provision for the admittance of " articles 
imported for the use of the United States, provided that 
the price of the same did not include the duty " imposed 
on such importations. Under the tariff act of 1890 this 
provision was stricken out of the statute, with the result 
that when the Government imported any articles for its 
own use which were subject to duties (as, for example, 
materials to be used in the National Bureau of Printing 
and Engraving), it was obliged, in virtue of its non-exemp- 
tion from the laws which it imposed on its own citizens, 
to pay such duties itself. But as the Government has no 
authority to expend money for any purpose without the 
authority of Congress, the latter body accordingly author- 
ized the Federal Treasury to appropriate money from its 
tax receipts and make payments with the same to the cus- 

* Of the net ordinary receipts of the Federal Government 
($385,819,000) in 1893, only about $12,000,000 was derived from 
sources that could not be regarded as taxes, and were mainly re- 
ceipts from the sales and surveys of public and Indian lands 
($4,120,000) and of other Government property. 



GOVERNMENT PAYS DUTIES. 581 

tomhouse, which, the customhouse was to immediately 
pay back into the Treasury. Just what process was gone 
through with to effect such a result the public was not 
informed, but probably the collector of customs drew his 
warrant on the Treasury, had the amount credited to his 
account, and then recredited to the Treasury. But, be this 
as it may, it is clear that the Government, under the con- 
ditions above stated, paid the tax on its imports ; that 
the tax may be regarded in the light of a penalty on the 
Government for importing articles for its own use; and 
that the action of Congress in authorizing the Treasury 
to appropriate money for the payment of such taxes was 
a recognition or admission by that body that a tax upon 
imports neither puts anything in nor takes anything from 
the pocket of the foreigner. Does it not, moreover, invest 
with a degree of comicality a law enacted by the Congress 
of the United States for the purpose of taxing foreign 
importers, which necessitated the enactment by it of an- 
other law appropriating money to enable the United States 
to pay customs taxes every time on everything that it may 
import for its own uses ? * Finally, if the foreigner and 

* In 1897 the merchant tailors of the United States, who ought 
to know something about the incidence of a custom tax on im- 
ported clothing, united in a petition to Congress asking that 
Americans returning from Europe be permitted to introduce only 
two suits of foreign-made clothes free of duty; and in support of 
their request they comment as follows on a ruling of the Treasury 
in respect to this matter: "Under this ruling it was possible to 
enter free of duty vast quantities of foreign-made garments which 
had never been actually in use, and which were so imported solely 
because there exists a relative difference of at least fifty per cent 
in values between the cost of made-up garments in the United 
States and Europe, thus saving to the purchaser of garments abroad 
one half of their actual value upon arrival within the United States 
duty free." But if the foreigner who made and sold the goods 
in question was liable to pay the duty on dutiable clothing, and 
attended to his duty, there would be no profit to the returning 
tourist in importing clothing free of duty. It is further evident 
also that American tailors agree in opinion with Alexander Ham- 
ilton that the consumers of imported articles pay the customs taxes. 

The records of the commercial relations between the United 
States and Canada are exceedingly instructive on this matter. They 
all show that for the products which the Canadian sends to the 
United States, and on which somebody pays the duty, he receives 
exactly the same price as for those products which he sends to 
England, on which nobody pays any duty. This experience is 



582 THE THEORY AND PRACTICE OF TAXATION. 

not our citizens pays our customs taxes on imports, what 
is the object of placing by specific statutes any article 
on the free list ? Why not let him continue to pay millions 
of taxes for us, as, for example, on sugar? 

Attention is next asked to an analysis of the incidence 
of taxation, what is mainly direct, on processes and prod- 
ucts, and on the machinery by which one is effected and 
the other distributed. At the outset the following proposi- 
tions in the nature of economic axioms are submitted, 

exactly the same as that of the farmers of the Northwestern States 
-of the Federal Union, who usually get the same price for their 
wheat furnished to a Minnesota flour mill, or for shipment to free- 
trade England, as to countries like France and Germany, where 
heavy duties are assessed upon its import. The term " usually " is 
employed, for producers in the United States and Canada alike do 
not always get as large a price for the articles they export as for 
the same articles they sell to their fellow-countrymen. Again, if 
it be true, as the advocates of extreme protection assert, that the 
foreign exporter and not the consumer pays the duties on goods 
sent by him for sale in this country, how does it happen that it is 
not true concerning the farm produce and live stock exported from 
Canada? And why should American farmers be exempt from this 
rule in sending their grain to Europe ? Has anybody ever known of 
England buying American products any cheaper in New York than 
France or Germany, and is it not also true that the French or 
German or Italian consumer usually pays at least the amount of 
the duty levied by his Government more for American products 
than his English competitor has, whose imports are subjected to 
no duty? During the period from 1854 to 1866 there was, under 
the reciprocity treaty, practically free trade between Canada and 
the United States in live stock, wool, barley, rye. peas, oats, and 
other farm products, while subsequent to 1866, when the reciprocity 
treaty had been repealed, duties were imposed on all these articles 
on their import from Canada into the United States. During the 
first period Canadian horses, for example, sold under free trade for 
shipment to the United States at from sixty-five to eighty-five 
dollars each, while during the years next subsequent to 1866 the 
value of the Canadian horses imported into the United States was 
returned at from ninety- two to one hundred and four dollars each ; 
thus showing that the United States tariff did not force the 
Canadian horse breeders to lower their prices in order to compen- 
sate American purchasers for the duties exacted. And as regards 
the other products mentioned, the official data show that in no 
case did the imposition of duties under the United States tariff 
reduce the prices paid by American purchasers to the Canadian 
farmers for their products. These are very commonplace, very 
familiar, and very convincing facts which ought to silence all 
this talk about the foreign exporter or anybody else but the con- 
sumer paying the duty ; but it is not at all probable that they will. 



THE COST OF PRODUCTION. 583 

which it is believed will serve as stepping stones to the 
attainment of broad generalizations. 

Thus, property is solely produced to supply human 
wants and desires ; and taxes form an important part 
of the cost of all production, distribution, and consump- 
tion, and represent the labour performed in guarding and 
protecting property at the expense of the State, in all the 
processes of development and transformation.^ The State 
is thus an active and important partner in all production. 
Without its assistance and protection, production would 
be impeded or wholly arrested. The soldier or policeman 
guards, while the citizen performs his labour in safety-. 
As a partner in all the forms of production and business, 
the State must pay its expenses — i. e., its agents, for their 
services; and its only means of paying are through its re- 
ceipts from taxation, y Taxes, then, are clearly items of 
expense in all business, the same as rent, fuel, cost of 
material, light, labour, waste, insurance, clerical service, 
advertising, expressage, freight, and the like, and on busi- 
ness principles they find their place on the pages of profit 
and loss; and, like all other expenses which enter into 
the cost of production, must finally be sustained by those 
who gratify their wants or desires by consumption/ Pro- 
duction is only a means, and consumption is the end, and 
the consumer must pay in the end all the expenses of pro- 
duction. Every dealer in domestic or imported merchan- 
dise keeps on hand, at all times, upon his shelves, a stock 
of different and accumulated taxes — customs, internal 
revenue, State, school, and municipal — with his goods; 
and when we buy and carry away an article from any store 
or shop, we buy and carry away with it the accompany- 
ing and inherential taxes. 

Any primary taxpayer, who does not ultimately con- 
sume the thing taxed, and who does not include the tax 
in the price of the taxed property or its products, must 
literally throw away his money and must soon become 
bankrupt and disappear as a competitor; and accordingly 
the tax advancer will add the tax in his prices if he under- 
stands simple addition. How rapidly bankruptcy would 
befall dealers in imported goods, wares, and merchandise 
in the United States who did not strictly observe this rule 
will be realized when one remembers that the average tax 



584 THE THEORY AND PRACTICE OP TAXATION. 

imposed by its Government (in 1896) on all dutiable im- 
ports is in excess of fifty per cent. 

When Dr. Franklin was asked by a committee of the 
English House of Commons, prior to the American Revo- 
lution, if the province of Pennsylvania did not practically 
relieve farmers and other landowners from taxation, and 
at the same time impose a heavy tax on merchants, to the 
injury of British trade, he answered thai/*' if such special 
tax was imposed, the merchants were experts with their 
pens, and added the tax to the price of their goods, and 
thus made the farmers and all landowners pay their part of 
the tax as consumers/' W 

Taxes uniformly levied on all the subjects of taxation, 
and which are not so excessive as to become a prohibition 
on the use of the thing taxed, become, therefore, a part 
of the cost of all production, distribution, and consump- 
tion, and diffuse and equate themselves by natural laws 
in the same manner and in the same minute degree as all 
other elements that constitute the expenses of production. 
We produce to consume and consume to produce, and the 
cost of consumption, including taxes, enters into the cost 
of production, and the cost of production, including taxes, 
enters into the cost of consumption, and thus taxes levied 
uniformly on things of the same class, by the laws of 
competition, supply, and demand, and the all-pervading 
mediums of labour, will be distributed, percussed, and re- 
percussed to a remote degree, until they finally fall upon 
every person, not in proportion to his consumption of a 
given article, but in the proportion his consumption bears 
to the aggregate consumption of the taxed community. 

A great capitalist, like Mr. Astor, bears no greater 
burden of taxation (and can not be made to bear more 
by any laws that can be properly termed tax laws) than 
the proportion which his aggregate individual consump- 
tion bears to the aggregate individual consumption of 
all others in his circuit of immediate competitipn; and 
as to his other taxes, he is a mere tax collector, or con- 
duit, conducting taxes from his tenants or borrowers to 
the State or city treasury. A whisky distiller is a tax 
conduit, or tax collector, and sells more taxes than the 
original cost of whisky, as finds proof and illustration 
in the fact that the United States imposes a tax of one 



LAW OF DIFFUSION. 585 

dollar and ten cents per gallon on proof whisky which its 
manufacturer would be very glad to sell free of tax for an 
average of thirteen cents per gallon. The tax, further- 
more, is required to be laid before the whisky can be re- 
moved from the distillery or bonded warehouse and allowed 
to become an article of merchandise. Tobacco in like man- 
ner can not go into consumption till the tax is paid. In 
Great Britain, where all tobacco consumed is imported, 
for every 3d. paid by the consumer, 2.5d. represents cus- 
toms duties or taxes. In Eussia it is estimated that the 
Government annually requires of its peasant producers 
one third the market value of their entire crop of cereals 
in payment of their taxes, and fixes the time of collecting 
the same in the autumn, when the peasant sells sufficient 
of his grain (mainly for exportation), and with the pur- 
chase money meets the demands of the tax collector. Can 
it be doubted that the sums thus extorted enter into and 
form an essential part of the cost of the entire crop or 
product of the land? It is, therefore, immaterial where 
the process of manufacture takes place; the citizens of a 
State pay in proportion to the quantity which they con- 
sume. The traveller who stops at one of the great city 
hotels can not avoid reimbursing the owner for the tax he 
primarily pays on the property, and the owner, in respect 
to the taxation of his hotel property, is but a great effect- 
ive real-estate and diffused tax collector. Again, the 
farmer charges taxes in the price of his products; the 
labourer, in his wages; the clergyman, in his salary; the 
lender, in the interest he receives ; the lawyer, in his fees ; 
and the manufacturer, in his goods. 

The American Bible Society is always in part loaded 
with the whisky and tobacco taxes paid by the printers, 
paper-makers, and bookbinders, or by the producers of 
articles consumed by these mechanics, and reflected and 
embodied in their wages and the products of their labour 
according to the degree of absence of competition from 
fellow-mechanics who abstain from the use of these and 
other taxed articles. 

These conclusions respecting the diffusion of taxes may 

be said to be universally accepted by economists so far 

as they relate to the results of production before they 

reach the hands of the final consumers; but they are not 

38 



586 THE THEORY AND PRACTICE OF TAXATION. 

accepted by many, as Mr. Henry George has recently ex- 
pressed it, in respect to taxes on special profits or advan- 
tages on things of which the supply is strictly limited, or 
of wealth in the hands of final consumers, or in the course 
of distribution by gift, and finally in respect to taxes on 
land. But a little examination would seem to show that 
all these exceptions are of the kind that are said to 
prove the rule. Special profits and advantages in this 
age of quick diffusion of knowledge and intense competi- 
tion are exceedingly ephemeral, and are mainly confined 
to results which the State with a view of encouraging re- 
moves for a limited time from the natural laws of com- 
petition by granting patents, copyrights, and franchises. 
Of things which are strictly limited in respect to supply, 
what and where are they? Only a very few can be speci- 
fied: ivory, Peruvian guano, whalebone, ambergris, and the 
pelts of the fur seal. Of wealth in the process of trans- 
mission, or in the hands of final consumers, it is not tan- 
gible wealth unless it is tangible property, which conforms 
under any correct system of taxation to the principles of 
taxation; and if any one advocates the taxation of the 
right to receive property which has already been taxed, 
he in effect advocates a double exaction of one and the 
same thing. If it be asked, Will an income tax on a per- 
son retired from business be diffused ? the answer, beyond 
question, must be in the affirmative, if the tax is uniform 
on all persons and on all amounts, and is absolutely col- 
lected in minute sums. Would any one pay the same price 
for a railroad bond which is subject to an income tax as 
he would for it if it was free from tax ? If one's land is 
taxed, either in the form of rent or income, will not the 
tenant have the burden primarily thrown upon him ? And, 
finally, will not the consumer of the tenant's goods pay 
through or by reason of such consumption? 

Eespecting the incidence of the tax on mortgages, it 
does not make any difference how mortgages are taxed — 
no earthly power can make the lender pay it. If the bor- 
rower would not agree to pay the tax, the lender would 
not loan him money, and whenever possible loans would 
be foreclosed and payment insisted upon if the borrower 
should refuse to pay the tax. 

Let us next subject to analysis the incidence of the 



TAXATION OF LAND. 587 

so-called taxation of land. Considered per se (or in it- 
self), land, in common with unappropriated air and water, 
has no value ; and it can not in any strict sense be affirmed 
that we tax land; and when such affirmation is made, its 
only legitimate and justifiable meaning is that we tax 
the value of land; which value is due entirely to the 
amount of personal property (in the sense of embodied 
labour) expended upon it, and the pressure or demand 
of such property or labour to use, possess, and occupy it. 

Vattel, in his Law of Nations, enunciates as a self- 
evident and irrefutable proposition that " Nature has not 
herself established property, and in particular with regard 
to lands. She only approves this introduction for the ad- 
vantage of the human race." 

One of the most striking examples of evidence in illus- 
tration and proof of this proposition is to be found in an 
incident, which has heretofore escaped attention, which 
occurred during a debate in the Senate of the United States 
in 1890 on a bill for revision of duties on imports, in re- 
spect to the article borax (borate of soda). Formerly 
the world's supply of this mineral substance, which enters 
largely into industrial processes and medicine, was limited, 
and mainly derived from certain hot springs in Tuscany, 
Italy; but within a comparatively recent period it has 
been found that it exists in such abundance in certain 
of the desert regions of California, Nevada, and Arizona, 
that it can be gathered with the minimum of labour from 
the very surface of the ground. Were a single acre of simi- 
lar desert to be found in anv section of a country enjoy- 
ing the most ordinary privileges in respect to transpor- 
tation and water supply, it would be a source of wealth 
to its proprietor. But under existing circumstances, al- 
though thousands and thousands of acres of this land can 
be bought with certain title from its owner — the Federal 
G-overnment — for two dollars and twenty-five cents an 
acre, no one wants it at any price; and the prospective de- 
mand for it has not yet been sufficient to warrant the Gov- 
ernment in instituting even a survey as a preliminary to 
effecting a sale. In the Senate debate above alluded to it 
was proposed to increase the duty on imported borax, with 
the expectation that a consequent increase in its domestic 
price would afford sufficient profit to induce such construe- 



588 THE THEORY AND PRACTICE OF TAXATION. 

tion of roads and such a supply of water and labour on the 
borax tracts of the deserts as to enable them to become 
property.* 

In the oases of the deserts of North Africa and Egypt 
the value of a tract of land depends very little upon its 
size or location, but almost exclusively upon the number 
of the date-bearing palms, the result of labour, growing 
upon it, and the quality of their fruit. John Bright on 
one occasion stated that if the land of Ireland were 
stripped of the improvements made upon it by the labour 
of the occupier, the face of the country would be " as bare 
and naked as an American prairie." 

An exact parallel to this state of things is afforded in 
the case of lands of no value reclaimed from the sea and 
made valuable, as has been often done in England, Hol- 
land, and other countries, by embodying labour upon them 
in the shape of restraining embankments and the trans- 
portation and use of filling material. Again, the value 
of springs or running streams of water is generally limited 
and of little account. But when, through direct labour, 
or the results of labour, the water is collected in reservoirs 
and made the instrumentality of imparting power to ma- 
chinery, or conducted through conduits to centres of popu- 
lation which otherwise could not obtain it, it becomes 
extremely valuable, and capable of being sold in large or 
small quantities. Another similar illustration is to be 
found in the case of atmospheric air, which in its natural 
and ordinary state has no marketable value, but when 
compressed by labour embodied in the form of machinery 
and made capable of transmitting force, it at once be- 
comes endowed with value and can be sold at a high price. 

An opinion entertained and strongly advocated by not 
a few economic writers and teachers of repute (more espe- 
cially in Europe, but not in the United States) f is, that 

* " Senator Paddock : I should like to ask the Senator from 
Nevada if, in the region of country where borax is found, by reason 
of finding it the land in the particular State or Territory is appre- 
ciated in value on account of its existence. 

" Senator Stewart : Not at all. 

" Senator Paddock : The value then given to it is all in labour." 
— Congressional Record, July, 1890. 

f " In America," writes Professor Seligman, " the few writers 
of prominence on the subject of taxation were, until recently, al- 



DIFFUSION OF LAND TAX. 589 

taxes on land do not diffuse themselves, but fall wholly on 
the landowner, and that there is no way in which he can 
throw it off and cause any considerable part of them to 
be paid by anybody else. The concrete argument in sup- 
port of this opinion has been thus stated : " When land is 
caxed, the owner can not, as a general rule, escape the tax, 
for the reason that, to get rid of the tax, the price of the 
land or of the rent must be raised the full amount of the 
tax, and the only way in which this can be done is by 
reducing the supply or quantity offered in market, or else 
by increasing the demand. The supply of land can not 
be reduced, and the demand being created by capital and 
population, both of which are beyond the control of 
the landowner, he can do nothing to raise the price of 
land, and hence can not get rid of the tax. It may 
be stated, then, as a general rule, that a tax on land, or 
on any commodity the supply of which is limited abso- 
lutely, must be paid by the owner. It is possible to sug- 
gest cases in which, through combination of owners and 
the necessities of consumers, a demand may be created 
strong enough to raise the price to the full amount 
of such tax, but it is doubted if such cases ever really 
occur." * 

The source of the contention on this important eco- 
nomic and social question, and the difficulty in the way of 
the attainment of harmonious conclusions, is due to a non- 
recognition of the fact that land is taxed under two con- 
ditions, and can not be taxed otherwise. Thus, if a person 
holds land for his exclusive use or enjoyment, and con- 
sumes all of its product, a tax on such land, which has 
been characterized by some economists as its " pure rent," 
will not diffuse itself, because it is a tax on personal en- 
most all followers of Thiers," the French economist and statesman, 
who claimed to have invented the term " diffusion " of taxes. 

" Our conclusion is, that under actual conditions in America 
to-day the landowner may virtually be declared to pay in the last 
instance the taxes that are imposed on his land, and that at all 
events it is absolutely erroneous to assume any general shifting to 
the consumer. In so far as our land tax is a part of a general prop- 
erty tax, it can not possibly be shifted; in so far as it is more 
or less an exclusive tax, it is even then apt to remain where it 
is first put — on the landowner." — Seligman: Incidence of Taxa- 
tion, p. 99. 



590 THE THEORY AND PRACTICE OF TAXATION. 

joyment or final consumption. The same is the case when 
a portion of a river or lake or its shore is rented for fish- 
ing for the purposes of sport. A like result will also 
follow, in a greater or less degree, from the inability or 
unwillingness of tenants, as has been often the case in 
Ireland, to pay rent sufficient to reimburse the landowner 
for interest on his investment of capital and cost of re- 
pairs. But if one employs land as an instrumentality 
for acquiring gain through its uses, the taxation of land 
must include the taxation of its uses — its contents, all 
that rests upon it, all that is produced, sold, expended, 
manufactured, or transported on it — and all such taxes 
will diffuse themselves. On the other hand, if the taxa- 
tion of land under such circumstances and conditions 
does not diffuse itself, then the taking is simply a process 
of confiscation, which if continued will ultimately rob 
the owner of his property, and is not governed by any 
principle. 

It is indeed difficult to see how a theory so wholly in- 
applicable to fact and experience as that of the nondiffu- 
sion of taxes on land — which makes property in land an 
exception to the rule acknowledged to be applicable to all 
other property — could originate and be strenuously main- 
tained to the extent even of stigmatizing any opposite 
view " as so very superficial as scarcely to deserve a refu- 
tation." * No little of confusion and controversy on this 
subject has arisen from the assumption that land specifi- 
cally, and the rent of land, constitute two distinct and 
legitimate subjects for taxation, when the fact is just the 
contrary. The rent of land is in the nature of an income 
to its owner; and it is an economic axiom that when a 
government taxes the income of property it in reality taxes 
the property itself. In England and on the continent of 
Europe land is generally taxed on its yearly income or in- 
come value, and these taxes are always considered as land 
taxes. Alexander Hamilton, in discussing the taxation 
of incomes derived directly from property, used this lan- 
guage : " What, in fact, is property but a fiction, without 
the beneficial use of it? In many instances, indeed, the 
income is the property itself." The United States Supreme 

* Seligman. Shifting and Incidence of Taxation. 



TAXATION OF RENT. 591 

Court, in its recent decision of the income tax (1895), also 
practically indorsed this conclusion. To levy taxes on 
the rent of land and also upon the land itself is, there- 
fore, double taxation on one and the same property, which 
in common with all other unequal and unjust taxes can 
not be diffused; and for this reason should be regarded 
as in the nature of exactions or confiscation, concerning 
the incidence of which nothing can be safely predicated. 
In short, this whole discussion, and the unwarranted as- 
sumption involved in it and largely accepted, is an illus- 
tration of what may be regarded as a maxim, that the 
greatest errors in political economy have arisen from over- 
looking the most obvious facts or deductions from ex- 
perience. 

With a purpose of further elucidating this problem, 
attention is asked first to its consideration from an " ab- 
stract," and next from a practical standpoint of view. Let 
us endeavour to clearly understand the common mean- 
ing of the word "rent." It is derived from the Latin 
reddita, "things given back or paid," and in plain Eng- 
lish is a word for price or hire. It may be the hire of any- 
thing. It is the price we pay for the right of exclusive use 
over something which is not our own. Thus we speak of 
the rent of land, of buildings and apartments, of a fishery, 
of boats, of water, of an opera box, of a piano, sewing ma- 
chines, furniture, vehicles, and the like. In Scotland at 
the present time farmers hire cows to dairymen, who pay 
an agreed-upon price by the year or for a term of years 
for each cow, and reimburse themselves for such payment 
and make a profit on the transaction by the sale of the 
products of the animal. This hire is called a rent, and is 
clearly the same in kind as the rent of land. We do not 
apply the word " hire " to the employment of men, because 
we have a separate word — " wages "—for that particular 
case of hire. Neither do we apply the word " rent " in 
English to the hire of monej', because we have another 
separate word — " interest " — which has come into special 
use for the price paid for the loan or hire of money. But 
in the French language the word rent is habitually and 
specially used to signify the price of the hire money, and 
that of " rentes " to investments of money paying interest ; 
the French national debt being always spoken of as " les 



592 THE THEORY AND PRACTICE OF TAXATION. 

rentes "; while the men who live on the lending of money, 
or capital in any form, are called " rentiers." 

The question next naturally arises, Why is it necessary 
to set up any special theory at all about the disposition 
of the price which we pay for the hire of land, any more 
than about the price we pay for the hire of a house, of 
furniture, of a boat, of an opera box, or of a cow? The 
particular kind of use to which we put each of these 
various things is no doubt very different from the kind 
of use to which we put each or all the others. But all 
of these uses resolve themselves into the desire we have 
to derive some pleasure or some profit by the possession 
for a time of the right of exclusive use of something which 
is not our own, and for which we must pay the price, not 
of purchase, but of hire. 

The explanation of this curious economic phenomenon 
is to be found in the assumption and positive assertion on 
the part of not a few distinguished economists that the 
truly scientific and only correct use of the term " rent " 
is its application to the " income derived from things of 
all kinds of which the supply is limited, and can not be 
increased by man's action." * As a rule, economists who 
accept this definition confine its application to the hire 
of land alone, although it professes to include other things, 
" of all kinds," to which the same description applies — 
namely, that they can not be increased in quantity by any 
human action. There are, however, no such other things 
specified, and in any literal sense there are no such other 
things existing, unless water and the atmosphere be in- 
tended. 

Now, although it is indisputably true that man by his 
action can not increase the absolute or total quantity of 
land, any more than of water and air, appertaining to the 
whole globe on which we live, there is practically no limita- 
tion to the degree of value which man's action can impart 
to land, and which is the only thing for which land is 
wanted, bought, or sold, and which, as already shown, can 
be truly made the subject of taxation. The tracts of land 
on the earth's surface which are of no present marketable 
value are its deserts, its wildernesses, the sides and summits 

* Professor Marshall. Principles of Economies, vol. i, p. 142. 



PRACTICAL CONSEQUENCES. 593 

of its mountains, and its continually frozen zones, where 
no results of labor are embodied in or reflected upon it; 
while, on the other hand, its tracts of greatest value are 
in the large cities and marts of trade and commerce, as in 
the vicinity of the Bank of England, or in Wall Street, 
where the results of labour are so concentrated and re- 
flected upon land that it is necessary to cover it with gold 
in order to acquire by purchase a title to it and a right to 
its exclusive use. The difference between land at twenty- 
five dollars an acre and twenty-five dollars a square foot 
is simply that the latter is or may be in the near future 
covered or surrounded by capital and business, while the 
former is remote from these sources of value. One of the 
greatest possible, perhaps probable, outcomes of the mod- 
ern progress of chemistry is that through the utilization 
of microbic organizations, the value of land as an instru- 
mentality for the production of food may be increased to 
an extent that at the present time is hardly possible of con- 
ception. Again, in the case of air and water, although 
their total absolute quantity can not be increased, their 
available and useful quantity in any place, as before 
shown, can be by the agency of man, and their use made 
subject to hire or rent. 

Consideration is next asked to the question at issue 
from what may be termed its practical standpoint. We 
have first a proposition in the nature of an economic axiom, 
that the price of everything necessary for production, or 
the hire of anything — land, money, and the like — without 
which the product could not arise, is, and must be, with- 
out exception, a part of the cost of that product; second, 
that all levies of the State which are worthy of being desig- 
nated as taxes constitute an essential element of the cost 
of all products. The rent of an opera box, given to obtain 
a mere pleasure, constitutes a part of the fund out of which 
the musicians are paid, and if they are not so paid they 
will not play or sing. The rent given for the right to fish 
on a certain part of a river or its shores is a part of the 
cost of producing the fish as a marketable commodity. If 
a house is hired for the purpose of conducting any busi- 
ness in it, the price of that hire does most certainly enter 
into the cost of that business, whatever it may be, assum- 
ing that the use of the house is a necessity for carrying it 



594 THE THEORY AND PRACTICE OF TAXATION. 

on. As no man will produce a commodity by which he is 
sure to lose money, or fail to obtain the ordinary rate of 
profit, the tax must be added to the price, or the production 
will cease. If a uniform tax is imposed on all land occu- 
pied, it will be paid by the occupier, because occupation 
(house-building) will cease until the rent rises sufficiently 
to cover the tax. The landlord assesses upon his tenants 
the tax he has paid upon his real estate; each tenant 
assesses his share upon each of his customers; and so per- 
fect is this diffusion of land taxation that every traveller 
from a distant part of the country who spends even a single 
day at a hotel pays, without stopping to think about it, 
a portion of the taxes on the building, first paid by the 
owner, then assessed upon the lessees, and next cut up by 
them minutely in the per diem charge. But of course 
neither the owner nor lessee really escapes taxation, be- 
cause a portion of somebody else's tax is thrown back 
upon them. 

Is it possible to believe that in a city like New York, 
where less than four per cent of its population pay any 
direct tax on real estate, or in a city like Montreal, where 
the expenses of the city are mainly derived from taxes on 
land and the building occupancy of land, the great major- 
ity of the inhabitants of those cities are exempt from all 
land taxation? In China, where, as before shown, the title 
or ownership of all land vests in the emperor, and the rev- 
enue of the Government is almost exclusively derived from 
taxation of land in the form of rent, does the burden of 
tax remain upon the owner of the land? If the tax in the 
form of rent is paid in the products of the land, as un- 
doubtedly it is in part, will not the cost of the percentage 
of the whole product of the land that is thus taken in- 
crease to the renter the cost of the percentage that is left 
to him; or, if the product is sold for money with which to 
pay the tax rent, will not its selling price embody the cost 
of the tax, as it will the cost of every other thing necessary 
for production? To affirm to the contrary is to say that 
the price which the Chinese farmer pays for the right of the 
exclusive use of his land is no part of the crops he may 
raise upon it. 

Consider next the assertion of those who maintain the 
non-diffusion theory that taxes on land are paid by the 



LAND TAX COMPENSATED. 595 

owners because the supply of land can neither be increased 
nor diminished. In answer to it we have the indisputable 
fact that the owners of land, whenever taxes are increased, 
attempt to obtain an increased rental for it if the circum- 
stances will permit it. And the very attempt tends to in- 
crease the rent. Nothing but adverse circumstances, such 
as diminishing population or commercial and industrial 
distress, can prevent a rise in the rental of land on which 
the taxes are increased; and in the case of dwellings and 
warehouses the rise is almost always very prompt, because 
no man will erect new dwellings or warehouses unless 
their rent compensate fully the increase of taxation. And 
in any prosperous community, in which population in- 
creases in the natural ratio, there must be a constant 
increase of dwellings and warehouses to prevent a rise of 
rent, independent of higher wages and higher taxation. 
In no other occupation is capital surer of obtaining the 
average net remuneration than in the erection of dwell- 
ings and warehouses, and nothing but lack of general pros- 
perity and diminishing population can throw the burden of 
taxation on real estate or its owners, without the slightest 
attempt at combination on their part. If the owners of 
land are not reimbursed for its taxation by its occupants, 
new houses " would not be erected, the old ones would 
wear out, and after a time the supply would be so small 
that the demand would raise rents, and house building 
begin again, the tax having been transferred to the occu- 
pier." 

It is pertinent at this point to notice the averment that 
is frequently made, that cultivators of the soil can not 
incorporate taxes on the land in the price of their prod- 
ucts, because the price of their whole crop is fixed by the 
price at which any portion of it can be sold in foreign 
markets. In answer to this we have first the fact that, to 
give the population of the world an adequate supply of 
food and other agricultural products, it is not only neces- 
sary that all the land at present under cultivation shall 
continue to be so employed, but further that new lands 
shall each year be brought under cultivation, or else the 
land already cultivated shall be made more productive. 

The population of the world steadily increases, not- 
withstanding wars, epidemics, and all the evils which are 



596 THE THEORY AND PRACTICE OF TAXATION. 

consequences of man's ignorance and of his improper use 
of things, his own faculties included. Hence, in case of 
increased taxation on land, the cultivator of the soil is 
generally enabled to transfer easily and promptly the 
burden of the tax to the purchasers of the products he 
raises, without abandoning the cultivation even of the 
least productive soil. 

Furthermore, the exports of many agricultural prod- 
ucts are due not to the cheapness of their cost of produc- 
tion, but to the variations which occur in the productive- 
ness of the crops of other countries. M. Eouher, a French 
economist, and for a period a minister of commerce, 
thoroughly investigated this matter, and proved by incon- 
testable data that almost invariably when the yield of 
breadstuffs in Europe was large in the country drained by 
the Black and Baltic Seas, it was small in the countries 
drained by the Atlantic. This variation in the yield of 
agricultural crops forces the countries where crops are 
deficient to purchase from those where they are abundant, 
or who have a surplus on hand from previous abundant 
harvests. In the United States, when the harvests are 
abundant, the American farmers, rather than sell below a 
certain price, keep a portion of their crops on hand until 
bad crops in Europe produce a foreign demand, which has to 
be supplied at once. Under such circumstances those who 
hold the surplus stock of breadstuffs, or any other product, 
would control the price, and not the foreigners who stand 
in need of it. The only check, then, to the cupidity of the 
holders of breadstuffs is the competition among them- 
selves, which invariably suffices to prevent any undue 
advantage being taken of the necessities of the countries 
whose harvests are deficient. These bad crops occur fre- 
quently enough to consume all the surplus of the countries 
that produce in excess of their own wants. In fact, this 
transient, irregular demand is counted upon and provided 
for by producers just as much so as the regular home de- 
mand — hence is one of the elements that regulate produc- 
tion and control prices. 

At this point of the discussion it is desirable to obtain 
a clear and true idea of the meaning or definition of the 
phrase " diffusion of taxes." As sometimes used in popu- 
lar and superficial discussions, it is held to imply that every 






TAXATION AND CONSUMPTION. 597 

tax imposed by law distributes itself equitably over the 
whole surface of society. Such implication would, how- 
ever, be even more fallacious than an assumption that every 
expenditure made by an individual distributes itself in 
such a way that it becomes equally an expenditure by 
every other individual. On the other hand, a fair con- 
sideration of the foregoing summary of facts and deduc- 
tions would seem to compel every mind not previously 
warped by prejudice to accept and indorse the following 
as great fundamental principles in taxation: First, that in 
order to burden equitably and uniformly all persons and 
property, for the purpose of obtaining revenue for public 
purposes, it is not necessary to tax primarily and uniformly 
all persons and property within the taxing district. Sec- 
ond, equality of taxation consists in a uniform assessment 
of the same articles or class of property that is subject to 
taxation. Third, taxes under such a system equate and 
diffuse themselves; and if levied with certainty and uni- 
formity upon tangible property and fixed signs of property, 
they will, by a diffusion and repercussion, reach and bur- 
den all visible property, and also all of the so-called " in- 
visible and intangible " property, with unerring certainty 
and equality. 

All taxation ultimately and necessarily falls on con- 
sumption; and the burden of every man, under any equi- 
table system of taxation and which no effort will enable 
him to avoid, will be in the exact proportion or ratio which 
his aggregate consumption maintains to the aggregate con- 
sumption of the taxing district, State, or community of 
which he is a member. 

It is not, however, contended that unequal taxation on 
competitors of the same class, persons, or things diffuses 
itself whether such inequality be the result of intention or 
of defective laws, and their more defective administration. 
And doubtless one prime reason why economists and others 
interested have not accepted the law of diffusion of taxes 
as here given is that they see, as the practical workings of 
the tax systems they live under, or have become practically 
familiar with, that taxes in many instances do seem to re- 
main on the person who immediately pays them; and fail 
to see that such result is due — as in the case of the taxa- 
tion of large classes of the so-called personal property — to 



598 THE THEORY AND PRACTICE OF TAXATION. 

the adoption of a system which does not permit of equality 
in assessment, and therefore can not be followed by any- 
thing of equality in diffusion. Such persons may not 
unfairly be compared to physicists, who, constantly work- 
ing with imperfect instruments, and constantly obtaining, 
in consequence, defective results, come at last to regard 
their errors as in the nature of established truths.* 

According to these conclusions, the greatest consumers 
must be the greatest taxpayers. The man also who evades 
a tax clearly robs his neighbours. The thief also pays 



* In a like experience the Duke of Argyll, in his work The 
Unseen Foundations of Society, finds an explanation of the so- 
called theory of Kicardo, that the rent which a farmer of agricul- 
tural land pays as the price of its hire — that is to say, the price 
which he pays for the exclusive use of it — is no part of the cost of 
the crops he may raise upon it; a conclusion that can not be pos- 
sibly true, unless it be also true that rent is paid for something 
that is not an indispensable condition of agricultural production. 
" Thus rights are in their very nature impalpable and invisible. 
They are not material things, but relations between many ma- 
terial things and the human mind and will. The right of exclusive 
use over land is a thing invisible and immaterial, as other rights 
are, and, although it is, and has been since the world began, the 
basis of all agricultural industry, it is a basis impalpable and 
invisible, whereas the material visible implements and tools, whose 
work depends upon it, are all visible and palpable enough, and all 
of which would never be were we to see them without the invisible 
rights upon which they depend. All of the former, in their place 
and order, are instruments of production; all of them catch the 
eye, and may easily engross the attention. On the other hand, if 
we are induced to forget those other elements, which are equally 
essential instruments of production, merely because they are out 
of sight, then our deception may be complete, and fallacies which 
become glaring when memory and attention are awakened may find 
in our half-vacant minds an easy and even a cordial reception." 

Adam Smith may be fairly considered as having fully com- 
mitted himself beyond all controversy in his great work, The 
Wealth of Nations, to the principle that taxes, with a degree of 
infallibility, diffuse themselves when they are levied uniformly on 
the same article; and he even goes so far as to admit that a tax 
upon labour, if it could be uniformly levied and collected, would be 
diffused, and that the labourer would be the mere conduit through 
which the tax would pass to the public treasury. Thus he says, 
" While the demand for labour and the price of provisions, there- 
fore, remain the same, a direct tax upon wages can have no other 
effect than to raise them someAvhat higher than the tax." 

The German economist Bluntschli, who has carefully studied 
this question of the final incidence of all just and equitable taxes, 



ALL PAY TAXES. 599 

taxes indirectly, for he is a consumer, and must pay the ad- 
vanced price caused by his own roguery for all he con- 
sumes, although he does steal the money to pay with. 
Idlers and even tramps pay taxes, but the amount that 
they indirectly pay into the fund is much less than they 
take out of it. People are sometimes referred to or char- 
acterized as non-taxpayers, and in political harangues and 
socialistic essays measures or policies are recommended by 
which certain persons or classes, by reason of their ex- 
treme poverty, shall be entirely exempt from all incidence 
or burden of taxation. Such a person does not, however, 



is in substantial agreement with the above conclusions, but pre- 
fers to use a different term for characterizing such finality than 
consumption, and expresses himself as follows : " In the end taxes 
fall on enjoyments. Hence the amount of each man's enjoyments 
and not his income is the justest measure of taxation." — Bluntsclili, 
vol. x, p. 146. 

M. Thiers, the French statesman and economist, was also a 
believer and earnest advocate of the theory of the diffusion of 
taxes, and lays down his principles in the following words: "Taxes 
are shifted indefinitely, and tend to become a part ~>f the price of 
commodities, to such an extent that every one bears his share, not 
in proportion to what he pays the state, but in proportion to what 
he consumes." And in his book Rights to Property he thus illus- 
trates the method in which taxation diffuses itself: "In the same 
manner as our senses, deceived by appearances, tell us that it is the 
sun which moves and not the earth, so a particular tax appears to 
fall upon one class, and another tax upon another class, when in 
reality it is not so. The tax really best suited to the poorest mem- 
ber of society is that which is best suited to the general fortune of 
the state; a fortune which is much more for the possession and 
enjoyment of the poor man than it is for the rich; a fact of which 
we are never sufficiently convinced. But of the manner, neverthe- 
less, in which taxes are divided among the different classes of the 
state, the most certain thing we can say is: That they are divided 
in proportion to what each man consumes, and for a reason not 
generally recognised or understood, namely, that taxes are re- 
flected, as it were, to infinity, and from reflection to reflection be- 
come eventually an integral part of the prices of things. Hence 
the greatest purchasers and consumers are everywhere the greatest 
taxpayers. This is what I call ' diffusion of taxation/ to borrow 
a term from physical science, which applies the expression ' dif- 
fusion of light ' to those numberless reflections, in consequence of 
which the light which has penetrated the slightest aperture spreads 
itself around in every direction, and in such a manner as to reach 
all the objects which it renders visible. So a tax which at first 
sight appears to be paid directly, in reality is only advanced by the 
individual who is first called upon to pay it." 



600 THE THEORY AND PRACTICE OF TAXATION. 

exist in any civilized community. If one could be found 
he would be a greater curiosity than exists in any museum. 
To avoid taxation a man must go into an unsettled wilder- 
ness where he has no neighbours, for as soon as he has a 
companion, if that companion be only a dog, which he in 
part or all supports, taxation begins, and the more com- 
panions he has, the greater improvements he makes, and 
the higher civilization he enjoys, the heavier will be the 
taxes he must pay. 

Taxes legitimately levied, then, are a part of the cost of 
all production, and there can be no more tendency for 
taxes to remain upon the persons who immediately pay 
them than there is for rents, the cost of insurance, water 
supply, and fuel to follow the same law. The person who 
wishes to use or destroy the utility of property by con- 
sumption to gratify his desires, or satisfy his wants, can 
not obtain it from the owners or producers with their con- 
sent, except by gift, without giving pay or services for it; 
and the average price of all property is coincident with the 
cost of production, including the taxes advanced upon it, 
which are a part of its cost in the hands of the seller. 
Again, no person who produces any form of property or 
utility, for the purpose of sale or rent, sustains any bur- 
den of legitimate taxation, although he may be a tax ad- 
vancer; for, as a tax advancer, he is the agent of the State, 
and a tax collector from the consumer. But he who pro- 
duces or buys, and does not sell or rent, but consumes, is 
the taxpayer, and sustains a tax in his aggregate consump- 
tion, where all taxation must ultimately rest. In short, 
no person bears the burden of taxation, under an equita- 
ble, legitimate system, except upon the property which he 
applies to his own exclusive use in ultimate consumption. 
The great consumer is the only great taxpayer. 

Finally, a great economic law pointed out by Adam 
Smith, which has an important and almost conclusive bear- 
ing upon this vexed problem of the diffusion of taxes, 
should not be overlooked — namely, his statement in The 
Wealth of Nations that " no tax can ever reduce for any 
considerable time the rate of profit in any particular trade, 
which must always keep its level with other trades in the 
neighbourhood." In other words, taxes and profits, by the 
operation of the laws of human nature, constantly tend to 



LEVEL OF TAXATION. 601 

equate themselves. Man is always prompted to engage in 
the most profitable occupation and to make the most prof- 
itable investment. And since the emancipation from 
feudalism with its sumptuary laws, legal regulations of the 
price of labour and merchandise, and other arbitrary gov- 
ernmental invasions of private rights, individual judgment 
and self-interest have been recognised as the best tests or 
arbiters of the profitableness of a given investment or 
occupation. The average profits, therefore, of one form 
of investment, or of one occupation (as originally shown by 
Adam Smith), must for any long period equal the average 
profits of other investments and occupations, whether 
taxed or untaxed, skill, risk, and agreeableness of occu- 
pation being taken into consideration.* Natural laws 
will, accordingly, always produce an equilibrium of 
burden between taxed and untaxed things and persons. 
There is a level of profit and a level of taxation by 
natural laws, as there is a level of the ocean by natural 



* As applied to the wages of labour, the truth of this principle 
is equally incontestable. " The sewing girl performing her toilsome 
work by the needle at one dollar a day, the street sweeper working 
the mud with his broom at a dollar and a half, the skilled labourer 
at two and three dollars, the professor at five, the editor at five 
or ten, the artist and the songstress at ten or five hundred dollars 
a day are all members of the working classes, though working at 
different rates. And it is only the difference in their effectiveness 
that causes the difference in their earnings. Bring them all to the 
same point of efficiency, and their earnings also will be the same." 
— W. Jungst, Cincinnati. 

John Locke, in his treatise On the Standard of Value, treats 
of taxation, and shows conclusively that if all lands were nominally 
free from taxation, the owners of lands would proportionally pay 
more taxes than now, because the same amount of money must 
continue to be collected in some form, and the average profits of 
lands would only be equal to the average profits of other invest- 
ments; and further, that the expense and annoyance (another form 
of expense) would be increased if the tax were exclusively levied 
in the first instance upon personal property; and hence the land- 
owner would be burdened with his proportion of the unnecessary 
expense and annoyance. He also shows that you may change 
the form of a uniform tax, but that you can not change the burden ; 
and that the change will increase the burden, if the new system is 
more expensive and annoying than the old. Locke wrote nearly a 
century before Adam Smith published his Wealth of Nations, and 
it would seem probable that Smith acquired his ideas relative to 
the average profits of investments from Locke. 



602 THE THEORY AND PRACTICE OF TAXATION. 

laws. In fact, all proportional contributions to the State 
from direct competitors are diffused upon persons and 
things in the taxing jurisdiction by a uniformity as mani- 
fest as is the pressure upon water, which is known to be 
equal in every direction. 

A word here in reference to the popular idea that the 
exemption of any form of property is to grant a favour to 
those who possess such property. This idea has, however, 
no warrant for its acceptance. Thus, an exemption is 
freedom from a burden or service to which others are 
liable; but in case of the exclusion of an entire class of 
property from primary taxation, no person is liable, and 
therefore there is no exemption. An exclusion of all 
milk from taxation, while whisky is taxed, is not an ex- 
emption, for the two are not competing articles, or articles 
of the same class. It is true that highly excessive taxa- 
tion of a given article may cause another and similar 
article, in some instances, to become a substitute or com- 
peting article; and hence the necessity of care and moder- 
ation in establishing the rate of taxation. We do not 
consider that putting a given article into the free list, 
under the tariff, is an exemption to any particular indi- 
vidual; but if we make the rate higher on one taxpayer or 
on one importer of the same article than on another tax- 
payer or importer, we grant an exemption. We use the 
word " exemption," therefore, imperfectly, when we speak 
of " the exemption of an entire class of property," as, for 
example, upon all personal property; for if the removal of 
the burden operates uniformly on all interested, or owning 
such property, then there can be no primary exemption. 



CHAPTEE XXVII. 

THE BEST METHODS OF TAXATION". 
PAET I. 

This historical survey of tax experience among peoples 
widely differing in their economic condition and social rela- 
tions, and this examination of the scope and practice of 
taxation, with especial reference to the tax systems of the 
United States as defined and interpreted by judicial au- 
thority, prepare the way for a discussion of the best 
methods of taxation for a country situated as is the United 
States. General as are the theoretical principles under- 
lying taxation, the application of these principles to exist- 
ing conditions must be modified to meet the long usage and 
inherited prejudice of the people, and the form of produc- 
tion or manner of distributing wealth. This holds true 
in the face of appearances so opposed to it as to defy defi- 
nition and acceptance. No less promising field for an 
income tax can be pictured than British India, and few 
more promising fields than France. Yet India has borne 
such a tax for years, while France will not permit a true 
tax on income to be adopted as a part of its revenue system. 
In the latter country the plea is made that the upper and 
middle classes already pay under other forms of taxation 
more than their due proportion of the public burdens, and 
an additional and necessarily discriminating duty laid 
upon them will only make this inequality the greater. 
Class interest may thus oppose its veto to a change that 
promises to reduce the burdens of one class of taxpayers 
at the expense of another; or may even oppose a change 
that offers the chance of collecting a larger revenue with 
less real difficulty and sacrifice on the part of the taxed. 
No opposition can set aside even temporarily the great 
rules that clearly define a tax from tribute, a legal and 
beneficial taking by the state of a certain part of the public 

603 



604 THE THEORY AND PRACTICE OF TAXATION. 

wealth, from a demand that involves waste or mischievous 
expenditure, for which the state or people derive no 
advantage commensurate with the cost, or from which 
individuals obtain a gain not defensible in justice, and at 
the expense of only one part of the community. 

After so many centuries of experiment, in which 
hardly a possible source of state revenue has escaped atten- 
tion, some knowledge of the great principles of taxation 
might have been evolved. Unfortunately, the experience 
of one nation is not accepted as containing lessons applica- 
ble to the needs or conditions of another, and one genera- 
tion rarely appeals to history save to defend its own experi- 
ments. Ignorance, half knowledge, which is quite as 
dangerous, and interest guide or influence legislation, and 
those who predict failure or danger are regarded as the- 
orists, and denounced as unpractical. Nowhere is the 
tendency to move independent of enlightened knowledge 
more evident than in the United States. At every appear- 
ance of the tax question, State and national legislatures 
are overwhelmed with measures that have been tried in 
the past, and after a thorough test condemned beyond any 
hope of defence. 

Yet history shows the gradual disappearance of certain 
forms of taxation which enjoyed great popularity for a 
time, and accomplished the end of their creation in a crude 
and often cruel manner. Looking over long periods of 
time, it is seen that some advances have been made, rather 
from a change in the economic condition of the people 
than from a true appreciation of the principles in question. 
The development of popular liberty has been an essential 
factor, and the alterations in tax methods require a close 
analysis of the causes leading to the rise and dominance of 
political and constitutional principle. While it is true 
that a popular uprising against fiscal exactions usually 
marked the limit of endurance of an oppressive system, it 
is also true that the same uprisings marked the completion 
of one stage of political development, and the readiness or 
even the need of entering upon a new stage. In one sense 
the progress of a people toward civilization in its highest 
meaning may be illustrated by its fiscal machinery and 
methods of obtaining its revenue from the people. It will 
be of interest to glance at some of these passing phases 



FARMED REVENUES AND LOTTERIES. 605 

which have generally come down to a late day, and are 
still to be found in activity in some of the most advanced 
states of Europe. 

The practice of farming out the revenues of a state or 
any part of it has become nearly obsolete, and where it 
does exist is the mark of a fiscal machinery as yet not fully 
developed. The opportunities and temptation which the 
contract system offered for oppressing the taxpayers were 
apparent long before the state was in a position to assert 
its ability to make its own collections. In France the 
fermiers generaux were a political factor, standing between 
the king and his people, regarded as necessary to the former 
and as oppressors of the latter. Their unpopularity, in 
part justified by their conduct, was a not unimportant item 
in the arraignment of royalty by the people. Wherever 
introduced, the farming of taxes proved in the long run as 
unwise politically as it was unprofitable financially; and 
the only reasonable defence for adopting it was the want of 
strength in the state to command its own revenue — a want 
as likely to arise from the dishonesty of its agents as from 
a political weakness. In early times the most universal 
manner of supplying the treasury of the state, the farming 
of taxes has now become so rare as to be classed as a curi- 
osity. Italy still employs this machinery to collect her 
taxes on tobacco, and Spain from necessity has mortgaged 
her taxes to the bank, with the task of collecting them. 

Of the same general character are the state lotteries, 
of which some few and quite important instances may still 
be found in action. Of the immorality of these instru- 
ments there can be little doubt, and there is quite as 
unanimous an opinion as to their inefficiency as fiscal in- 
struments. Yet it is only within very recent years that 
state lotteries have been discarded even in the most ad- 
vanced countries. The machinery of lotteries has often 
been modified, but, no matter how altered in details, they 
all have appealed to the love of games of chance. Adam 
Smith asserted that the " absurd presumption " of men in 
their own good fortune is even more universal than the 
overweening conceit which the greater part of men have in 
their own abilities.* Yet another assertion of the same 

* Wealth of Nations, vol. i, p. 112 (Roger's edition). 



606 THE THEORY AND PRACTICE OF TAXATION. 

writer is as true : " The world neither ever saw, nor ever 
will see, a perfectly fair lottery, or one in which the whole 
gain compensated the whole loss." Where the state 
undertakes it, there is a profit generally assured to the 
state, but that profit is by no means certain, and can not 
make good the demoralization introduced among the peo- 
ple. State lotteries are still a part of the revenue system 
in Italy and Austria (proper), where the receipts are im- 
portant, but show a decided tendency to diminish; Hun- 
gary and Denmark, where they are of little moment; and 
in Spain, where they are retained because of the general 
incapacity of the administration to reach other and more 
profitable sources of revenue. The experience of the State 
of Louisiana in connection with a State lottery is too 
recent to require examination. It is not probable that 
once abandoned such an instrument for obtaining money 
from the people will be revived, save as a last resort. 

The State monopoly in the manufacture and sale of an 
article for fiscal purposes holds a place of high importance 
in European countries, and is met elsewhere under condi- 
tions not so favourable to its maintenance. As an example 
of the latter may be cited the colonial policy of the Dutch 
in their possessions in the East. After the termination 
of the trading companies, the Government undertook the 
entire control of the colonies, and sought to make them a 
source of revenue. The natives were to be taxed, but, 
having little of their own to be taxed, and practising no 
occupation that could of its own volition become a profit- 
able source of revenue, the state undertook to organize 
industry, and, by creating an opportunity for employing 
the labour of the natives, to receive the profits of produc- 
tion for its own uses. The native chiefs were made " mas- 
ters of industry " and collectors of the revenue; and a cer- 
tain part of the labour of the natives, one day in every five, 
was decreed to the state. In order to derive a profit, this 
labour must be bestowed in cultivating some product that 
finds a market in international trade. Hence arose the 
importance of the sugar, coffee, tobacco, and spice crops of 
these Dutch islands, and for many years a handsome profit 
to the treasury was obtained from the management and 
sales of product. With the great fall in the prices ^ of 
sugar and coffee throughout the world, and the narrowing 



STATE MONOPOLIES. 607 

of the market for cane sugar, the Government obtained a 
less income each year, and has found it of advantage to 
relax the conditions surrounding cultivation, and to throw 
the management of the plantations more and more into 
private hands. To such an extent has this transition been 
effected that the state can no longer be considered as con- 
trolling a monopoly in product or sales, and is content 
with a revenue from other sources, one that does not even 
cover the expenses incurred in the colonial system. This 
experiment differs widely from those industries under- 
taken with the aid or encouragement of the state to be 
found in India. It was not with a fiscal object that they 
were established, and not infrequently the state sacrifices 
revenue by releasing them from tax burdens they would 
ordinarily endure. As one of the few remaining instances 
of the direct participation of a state in the production of 
products intended for foreign markets, yet undertaken 
and maintained for fiscal reasons, the history of the Dutch 
colonies in the East is instructive. 

In Prussia the working of certain mines is in the hands 
of the state, and was originally looked upon as an im- 
portant contribution to the income of the state. As in the 
Dutch experience, the changes in production throughout 
the world have greatly reduced the returns and made the 
income variable; yet there is little disposition to dispose 
of these possessions. " The danger of mineral supplies 
being worked in a reckless and extravagant manner with- 
out regard to the welfare of future generations, and the 
dread of combinations by the producers of such commodi- 
ties as tin, copper, and salt, with the aim of raising prices, 
have both tended to hinder the alienation of state 
mines." * 

The more common form of state monopoly is that 
which occupies a middle position, established for reasons 
of public safety or utility as well as of revenue. The salt 
monopoly enforced in Prussia was only abolished in 1867, 
and is still maintained in every canton of Switzerland. 
The strongest plea in its defence has been the guarantee 
by the state of the purity of the article sold, and this phase 
of the question has superseded the revenue aspect. Few 

* Bastable. Public Finance, p. 181. 



608 THE THEORY AND PRACTICE OF TAXATION. 

articles of prime necessity, like salt, are subject to monopo- 
lies imposed by the state, and by a process of elimination 
it is only articles of luxury or voluntary consumption that 
are regarded as fit objects of monopoly for the benefit of 
the state. 

A tax imposed upon an article at a certain stage of its 
production or manufacture may enforce the expediency 
or necessity of a state monopoly. Where the supervision 
of the state agents must be so close as to interfere with the 
conduct of the industry, the state intervenes and itself 
controls the manufacture and sale. Tobacco has long 
been subject to this fiscal regime, and, proving so produc- 
tive of revenue, there is little to be said against a monop- 
oly by the state of its manufacture and sale. 

In Italy the tobacco monopoly is conceded to a com- 
pany, but its return of net revenue to the state is nearly 
as large as the revenue derived from the taxes on real 
property (about thirty-eight million dollars a year). Prus- 
sia imposes a charge on the home-grown tobacco by a tax 
on the land devoted to its culture, but the return is very 
small, and Bismarck wished to introduce a true tobacco 
monopoly, modelled on that of France. But the condi- 
tions were opposed to his scheme, for the use of tobacco 
is general throughout the empire, and a proposition to in- 
crease its price by taxation or modify its free manufacture 
and distribution excited a widespread opposition. France 
maintains a full monopoly, and finds it too profitable to be 
lightly set aside unless some equally profitable source of 
revenue is discovered to make good the loss its abolition 
would involve. 

While historical support is given to the maintenance of 
a monopoly as in France, it is not probable that the system 
will find imitators in other states, however tempting the 
returns obtained might seem. Great Britain has by her 
insular position solved the problem in another way. By 
interdicting the domestic cultivation of tobacco, all that is 
consumed must be imported, and a customs duty offers a 
ready instrument for making the plant, in whatever form 
it enters, contribute its dues to the exchequer. In Eussia, 
as in the United States, where tobacco is a domestic prod- 
uct, the tax is imposed upon its manufacture, and this 
method requires supervision but no monopoly of the state. 



TRANSIT DUES. 609 

The tobacco regime is defended almost entirely on fiscal 
grounds, and as a monopoly, an extreme measure, has 
proved its value as an instrument of taxation. Other 
reasons, of a moral character, are urged to induce the state 
to monopolize the manufacture and sale of distilled spirits. 
Both France and Germany have considered this question, 
and, in spite of confident predictions of a large profit, have 
decided not to undertake it. Eussia, on the other hand, 
has taken it up quite as much on social as on revenue 
grounds, and is gradually securing a monopoly of the trade 
in spirits. The initial cost of the undertaking is large, 
and, as the system has not yet been perfected, it is too 
early to give a judgment on its availability as a financial 
instrument. 

The transit dues, once commonly used by different 
countries, have been generally abandoned, and in China 
must they be sought for in their original forms of vexa- 
tious and unprofitable force. They arose from a desire to 
derive some benefit from a commerce permitted grudging- 
ly, and rarely attaining any high results. The same end 
was sought by duties on exports, much employed when the 
country was supposed to be drained of its wealth by what 
was sent out of it. The conditions necessary for a suc- 
cessful duty on exports are not often found, and only in a 
few countries are they now existent. In Italy, South 
America, and Asia, exports of certain natural products are 
taxed, and, as in the case of Brazil, yield a notable revenue. 
In view of the rapid advancement of production in new 
countries and of inventions in the old, whereby many natu- 
ral monopolies have been destroyed and competition made 
more general, such duties prove to be more obstructive to 
trade than productive of revenue, and are rapidly being 
abandoned. In spite of a formal prohibition of export 
duties in the Constitution of the United States, they are 
sometimes suggested in all seriousness. 

In thus clearing the path of what may be called dead or 
dying methods of recent tax systems, the advantages en- 
joyed by the United States in their freedom from such sur- 
vivals become more evident. The practice of farming 
taxes never gained a foothold in any part of the country. 
Lotteries have been occasional, and with two exceptions 
have been conducted on a limited scale — that of Louisiana 



610 THE THEORY AND PRACTICE OF TAXATION. 

is well known; an earlier instance is less known. During 
the Kevolution one of the means resorted to by the Conti- 
nental Congress for income was a lottery, but the attempt 
proved disastrous to all concerned, and was finally aban- 
doned even more thoroughly than was the continental cur- 
rency. State monopolies of production and sale of any 
commodity have never met with favour, and stand con- 
demned in the desire for individual initiative. As sources 
of revenue, the public lands, state control of the post of- 
fice, and of such municipal undertakings as the water and, 
in a very few cases, the gas supply, has been employed, and 
in place of profit the mere cost of management is sought. 
More than any country of continental Europe, the United 
States has depended upon taxes, pure and simple, unsup- 
ported or modified by state domains, state mines, state 
manufactures, or state monopolies. Even Great Britain 
in her local taxation is bound and hampered by precedent, 
and pursues a system that is notoriously confused, costly, 
and vexatious. Long usage and the erection of independ- 
ent and conflicting authorities on principles other than 
fiscal have imposed upon the local agents the duty of as- 
sessing and collecting county and borough taxes which 
are as indefensible in theory as they are difficult in 
practice. 

From this weight of tradition and precedent the 
United States has been almost entirely free, and it was 
possible to construct out of small beginnings systems of 
Federal and State taxation at least reasonable and con- 
sistent, producing an increasing revenue with the rapid 
development of wealth and the larger number of taxable 
objects; and so elastic as to adapt themselves to such 
changes as are inevitable in any progressive movement of 
commerce or industry. That no such system has resulted 
after a century of national life, and an even longer term 
of local (colonial and State) activities, these papers have 
tended to show. That the time is at hand when the prob- 
lem of a thorough reform of both State and Federal taxa- 
tion must be met, current facts prove beyond any doubt. 
If I have aided in a proper comprehension of these prob- 
lems, and, by collecting certain experiences in taxation 
among other peoples and in different stages of civilization, 
contributed toward a proper solution, the end of this work 



CONDITIONS IN THE UNITED STATES. 611 

will have been attained. It is not possible to introduce a 
complete change of policy at once; it is not only feasible 
but necessary to indicate the direction this change should 
take, and the ends to be secured in making them. And 
first as to Federal taxation: 

In a democracy like that of the United States, the 
continuance of a mixed system of direct and indirect taxes 
is a foregone conclusion. Not that there is an absence of 
change or modification in the details of this double system, 
or in the application or distribution of a particular impost 
or duty. To deny such modification is to deny any move- 
ment in the body politic, or any progress in the industrial 
and commercial economy of the people. There is a steady 
and continuous movement in every direction, and the mere 
effort to escape taxation results in a new adjustment of 
related facts. This development has, partly through ne- 
cessity and partly through a rising consciousness of what 
a tax implies, been tending from indirect to direct taxes. 
Ever restive under a rigid supervision by the state of pri- 
vate concerns, there has been a wholesome opposition to 
inquisitorial taxes. But this opposition has been carried 
too far, and is due more to the ignorant and at times brutal 
disregard by the agents selected for enforcing the law than 
to an appreciation of the injustice of the tax. Whether 
in customs or excise, the same blunders of management 
have been committed, and created a spirit in the people 
that is injurious to their best interests. On the one hand, 
private enterprises have been unduly favoured by the 
removal of foreign competition, a favour that is now disap- 
pearing through the remarkable development of domestic 
competition. Thus taxes have been extensively used for 
other purposes than to obtain revenue, and for private 
ends. On the other hand, there has been created the 
feeling that taxation is a proper instrument for effect- 
ing a more equal distribution of wealth among the people, 
and readily becomes an instrument of oppression. 

The almost absolute dependence of the Federal Gov- 
ernment upon the customs duties for revenue through a 
great part of its existence was a striking fact. The sim- 
plicity of collection and the comparatively moderate scale 
of duties, although considered high at the time of imposi- 
tion, gave this branch of the possible sources of revenue a 



612 THE THEORY AND PRACTICE OF TAXATION. 

magnified importance. The development of the country- 
was slow, and at times greatly hampered by the tariff 
policy; but until about 1857 no other source of income was 
needed to meet the expenditures of the Government in a 
time of peace. 

In recent years this has all changed, and not for the 
better. The immense development in manufactures and 
financial ability accomplished since 1860 has made a tariff 
for protection an anachronism. The political features of 
customs legislation have been pushed so far as almost to 
overshadow the fiscal qualities. The wave of protection- 
ism that followed the abrogation of the commercial treaties 
of Europe about 1880 has resulted in tariffs framed with 
the desire to injure the commerce of other states rather 
than to meet the needs of a treasury. In the United 
States this policy has been carried beyond that of Europe, 
and the tariff now in existence is more protective than any 
hitherto enforced, short of absolute prohibition of imports. 

In more respects than one the tariff law of 1897 was an 
extreme application of the protective policy. Each year 
the United States has demonstrated its ability not only to 
meet the industrial competition of the world on an equal 
footing, but to engage with it aggressively and with com- 
plete success. It is not necessary to give the figures of 
exports of manufactures to establish this fact; it is now 
beyond question. To frame a measure of extreme protec- 
tion was, therefore, to overlook the most striking phase of 
the industrial situation existing in the United States. 
With an ability to manufacture cheaply and on a grand 
scale, and with a capacity to supply the demands of a 
market larger than any home market, there was no foreign 
competition to encounter, and the higher rates of duties 
meant nothing, either for protection or for revenue. In 
carrying further into action a tariff framed more for pro- 
tection than for revenue, a twofold error was committed. 
The provisions were so complicated as to make the appli- 
cation difficult, and in applying these provisions inquisi- 
torial and vexatious regulations were necessary to assure 
even a reasonable fulfilment of the requirements. In for- 
mer tariff laws a general description carried a large class 
of articles, and a uniform duty, usually ad valorem, was 
collected. But, under the demand for a more scientific 



COMPLEX TARIFF LAW. 613 

tariff, these general classes were broken up into a number 
of enumerated articles, each one carrying a specific or 
mixed duty, and an omnium or basket clause at the end to 
catch any article that could not be included in one of the 
enumerations. This desire to fix specific rates upon each 
imported commodity has been applied more generally in 
the law of 1897 than in any previous tariff act. An exam- 
ination of the imports of manufactures of textile fibres will 
illustrate this increase of complexity without any increase 
of revenue. Indeed, these classifications and rates, being 
suggested by interested parties, have for their object a 
reduction of imports, and as a rule a reduction in revenue 
from them follows. 

The second objection to the increasing complexity of 
the tariff laws is to be found in the petty annoyances im- 
posed upon importers and others in enforcing the not 
always consistent provisions of the law. These vexations 
are made all the more telling by the fact that the admin- 
istration of the law is apt to be in the hands of those who 
are openly hostile to foreign importations, and therefore 
regard the importer in an unfriendly spirit. The power 
given to the customs agents is enormous, and it is not 
remarkable that it is abused. The demand for samples, 
the appraisement of articles, the classification of new or 
compound commodities, all offer room for controversy, 
which is not always decided by an appeal to the courts of 
justice. In special instances, where a section of the law 
has been framed in behalf of a special interest, the at- 
tempt to enforce it becomes petty tyranny of the most 
intolerable kind. 

In operation the law soon exhibited its failure as a rev- 
enue measure. Although duties were generally increased, 
the more important articles taxed yielded a smaller 
revenue than under lower rates. The aggregate collec- 
tions under the bill did not meet the expectations of its 
sponsors, and for two reasons: first, because the higher 
duties discouraged imports; and, secondly, the demand for 
imported articles was steadily decreasing under the ex- 
panding ability of home manufactures to meet the needs 
of the market. No measure short of a direct encourage- 
ment to importations can change this situation, or prevent 
the further shrinkage in the use of foreign manufactures. 



614 THE THEORY AND PRACTICE OP TAXATION. 

It follows that the tariff, unless radically altered, can no 
longer be depended on for a return sufficient to defray one 
half of the rapidly increasing expenditures of the national 
Government. By refusing to impose moderate duties on 
articles of general consumption, revenue is sacrificed; by 
insisting upon imposing protective duties where little rev- 
enue can be had, the tariff is converted into a political 
weapon. Its dangerous qualities are strengthened by 
turning these duties against the products of certain coun- 
tries, a policy specially fit to invite reprisals. 

Even the framers of this latest tariff entertained the 
belief that some provision should be made for breaking its 
full effect. The familiar scheme for reciprocity treaties, 
under which moderate concessions in some of the duties 
could be made, was retained; but France was the only 
power that could have an object in seriously entertaining 
the proposition to enter into a negotiation. No real reduc- 
tion in duties could be given to Germany or any other 
country, and it has become a recognised fact that Germany 
does not hesitate to seize an opportunity to exclude the 
products of the United States, and on the same grounds 
as support the high duties in the American tariff. The 
system of drawbacks has ceased to be of much moment 
in our customs policy, and in the export interest in canned 
goods finds its chief exercise. Nor does a privilege to 
manufacture in bond affect more than one article of im- 
portance — ores of lead containing silver. No matter how 
it is regarded, the tariff of 1897 was not framed for rev- 
enue, and in experience has not proved sufficiently produc- 
tive to meet its share of the expenditures of Government. 
The animus of its sponsors in attaining the immediate 
political object sacrificed the more important and perma- 
nent object of revenue. It is a law which can be produc- 
tive of revenue only in periods of great commercial 
activity. 

Were the true object of customs duties — revenue — to 
be kept in view in tariff legislation, it would be a simple 
matter to devise a measure that would be satisfactory and 
highly productive of revenue. In the fifteen hundred or 
more articles enumerated in the tariff schedules, more 
than fourteen hundred are non-productive, or yield so small 
a return as to have in the aggregate no appreciable effect 



TARIFF REFORM. 615 

on the total receipts. The number left after so large an 
exclusion can be still further reduced without reducing 
the revenue one tenth; and it is from a small number of 
articles, hardly twenty-five, that the great part of the cus- 
toms revenue is obtained. By reducing the rates of duties 
on these to a point of highest revenue efficiency, at which 
the import is not interfered with and yet not encouraged, 
a higher return could be had than from the existing com- 
plicated, overloaded, and political compilation of duties, 
usually imposed for any reason other than what they will 
bring into the treasury. 

When, therefore, the best methods of Federal taxation 
are broached, the reform of the tariff stands first in im- 
portance. It is necessary to bring it more into line with 
the industrial conditions of to-day, which call for foreign 
markets rather than a domestic or closed market; and for 
a liberal commercial policy in place of one that regards the 
products of other countries, whether imported in the crude 
or manufactured forms, as constituting a menace to Ameri- 
can labour and American interests. It calls for a sys- 
tematic and intelligent revision, which shall throw out 
such duties as are no longer of service even for protection, 
and to reduce those that are hostile to the products of 
other countries and bear in themselves the seeds of repris- 
als in the future. Now that the United States is going 
into the great markets with its manufactures, and obtain- 
ing a foothold against all competitors, the invitation to 
retaliation holds a danger far greater to its own interests 
than any that can be inflicted on other peoples. The 
greater the advances made the more readily will recourse 
be had to reprisals and hostile legislation; and in support 
of every act appeal may be had to examples set by the 
United States.* 

* " The old protectionist, with the stock arguments about the 
influence of the tariff upon wages and all the rest of it, is beginning 
to die out. He told us all he had to say about the ' pauper labour ' 
of Europe, by which he often meant the best-educated and most 
skilful artisans of the world. We got tired of hearing about 
how the importer paid the tax, how it was Europe and England in 
particular that was all the time squeezing our lives out, till nearly 
all of us, being of English ancestry ourselves, wondered whether we, 
even, could be so good as we hoped we were, if we had sprung 
from something so essentially perverted and bad. We were told, 



616 THE THEORY AND PRACTICE OF TAXATION. 

too, that American tourists who went to Europe and spent money- 
there which they ought to have squandered at home were not 
friends of their country, and that they did us a particularly hostile 
act when they brought clothing, statuary, or diamond rings back 
with them from foreign parts. A season of high prices was a real 
heaven, and wars and fires were good things because they destroyed 
property that would have to be replaced, and this would create 
that demand which, reacting on supply, would increase prices. To 
say that an article was cheap was to say that the political party in 
power was no longer worthy of public confidence. It was related 
that each government could make its people so rich, and the idea 
was thought to have been traced down from Henry C. Carey, that 
the rest of the world could be safely disregarded altogether. 

" Seriously, who believes any of this stuff nowadays? The pro- 
tectionist is not reckoning with such popular impotency and stupid- 
ity. He believes in his fellow-man, and wants to give him a helping 
hand. He does not care what effect it has on England or Ireland. 
He is not sure that a protective tariff in and of itself will increase 
the wages of the workmen. He is even inclined to think that less 
wages and profits would do well enough for every man, if it were 
cheaper to live and there were not such extravagant demands upon 
every person from all sides — this without being a socialist. He is 
certain that ' a cheap coat ' does not necessarily make ' a cheap 
man,' but the cheaper the coat the better it will be for the wearer. 
That is what we are all trying to do, improve our processes, in- 
crease our effective working power, which means, if you please, 
to make things cheaper." — The Manufacturer (organ of the Manu- 
facturers' Club of Philadelphia). 



CHAPTEK XXVIII. 

THE BEST METHODS OF TAXATION. 
PART II. 

In passing from the tariff, or duties on imports, to the 
internal or excise taxes imposed by the Federal Govern- 
ment, there is evidently a distinct change in purpose. 
However subject to abuse the tax on distilled spirits has 
proved, and however frequently its agency has been in- 
voked to exaggerate the profits of interested parties, 
there has never been an open and avowed intention of 
turning it to private gain. The policy that has become 
almost inseparable from the customs tariff, and is by most 
people regarded as inherent in all customs legislation, has 
not been transferred to the internal-revenue taxes save in 
one or two instances of recent application and secondary 
importance. The danger of permitting taxation to be 
employed by either State or Federal Government for a 
purpose other than that of raising necessary revenue has 
been dwelt upon. When a police power is exercised in 
conjunction with a tax framed for revenue, and is regarded 
as the more important function to be performed, the policy 
requires careful examination. If revenue is the real 
object, the method of imposing the tax and the determina- 
tion of the rate which will give the highest return with 
the least interference in the production, distribution, and 
export of the commodity taxed remains to be defined. If 
restriction in manufacture, sale, or consumption is intend- 
ed, the question is no longer one of taxation proper, but of 
police regulation. The Federal taxes on oleomargarine, 
filled cheese, and mixed flour are of the nature of police 
inspection, and the tax on the circulation of State banks, 
amounting, as it has, to prohibition, is a still more extreme 
exercise of the same power. The imposition and collec- 
40 617 



618 THE THEORY AND PRACTICE OF TAXATION. 

tion of these duties have a penal quality, an intention to 
restrict or prohibit the production or sale or use of some 
article. They are not properly taxes; they are not a 
proper application of tax principles, but have originated in 
private interest, or in the deliberate intention to consti- 
tute a monopoly, State or other. 

The approach of war, or its actual presence, is made 
the excuse of an extension of taxes, and the Federal Gov- 
ernment tacitly admits its inability to increase indirect 
taxes on consumption by its general resort to an extension 
of the internal taxes and excise. The instrumentalities 
of business offer a fair field for stamp taxes, and these, 
when not so burdensome as to invite evasion, are acceptable 
because of the ease with which they are assessed and col- 
lected. A specific duty on the more important acts of 
commerce and daily business may be evaded, it is true, but 
not when the paper or instrument taxed must become 
public evidence. Stamps of small denomination on bonds, 
debentures, or certificates of stock and of indebtedness; 
on a bill of sale or memorandum to sell; on bank checks, 
drafts, or certificates of deposit; bills of exchange, draft, 
or promissory note; money orders and bills of lading; on 
express and freight receipts, on telegraph messages, and a 
large number of legal and other instruments, such as 
leases, mortgages, charter party, insurance policies — these 
are simple duties productive of large returns, and not 
unequal in their weight. The law of 1898 included such 
stamp taxes, as well as others on proprietary articles and 
wines. It was not easy to predict the incidence of these 
rates, and the distribution has been unequal. The 
charges of one cent on telegraph messages and express 
packages are paid by the sender in the larger number of 
cases, the companies merely adding a penny to their rates. 
This was not the intention of the law, and the courts have 
held that it was not so intended. The individual is power- 
less in a few transactions, and only the great concerns are 
able to avail themselves of this decision. The duties for 
seats or berths in a parlour car or for proprietary medi- 
cines, are paid by the company or manufacturer, though in 
certain preparations the price to the consumer was ad- 
vanced on the passage of the act. With all their draw- 
backs, and they are not few in number, these stamp duties 



INTERNAL DUTIES. 619 

afford a ready means of obtaining a good revenue without 
increasing unduly the general burdens of taxation. The 
law of 1898 was modelled after that of 1863, and many of 
the rates and descriptions will undoubtedly be incorpo- 
rated into the permanent internal-revenue system of the 
country — a measure enforced by the remarkably unequal 
returns derived from the customs. 

The existing system of internal duties is even more 
defensible than the tariff as a source of revenue. Its in- 
equalities, due to the haste in which the measure was 
prepared and the inexperience of those who framed the 
provisions and fixed upon the rates, are worn away in use, 
and where the rates are moderate and are not infected with 
a penal quality, the community adapts itself to them, 
accepting them as a necessary convenience. In the 
United States this spirit of acquiescence is most marked, 
not only because of a natural patience of tax burdens, but 
because of as natural a fear of other untried and more 
radical or oppressive measures. The situation of " busi- 
ness " when a general tariff bill is pending in Congress is 
one almost of panic, and the scramble to protect interests 
or to obtain some special advantage against rivals has 
become a scandalous feature of tariff revision. Except in 
the instances named, as oleomargarine and filled cheese, the 
internal-revenue system presents less of a field for such an 
exhibition of greed and self-interest; but the spirit duties, 
and even the tobacco rates, may be used in such a way as 
to favour the large manufacturer against the small con- 
cerns, and are to that extent misused and applied for pur- 
poses antagonistic to those properly pertaining to taxation. 
In a time of tax revision the suggestions for new taxes and 
ideas for changing the old are freely offered, and do not 
stop short of absolute prohibition of an industry, of total 
destruction of interest. The vagaries of a legislative body 
under such suggestions have instilled into the public mind 
a wholesome fear of its possible acts and fully explain the 
timid and uneasy condition of " business " when a general 
tax measure is under discussion. Whether it be the man- 
ufacturer or producer seeking protective duties, or the 
Granger or Populist asking for taxes of confiscation against 
capital and accumulated property, the spirit is the same — 
a desire to turn taxation to improper purposes. 



620 THE THEORY AND PRACTICE OF TAXATION. 

The tendency of Federal taxation to turn to taxes on 
capital and the instruments of " business " — direct, rather 
than indirect taxes — found its most extreme illustration in 
the income tax of 1894, the principles of which have al- 
ready been discussed. It finds a more moderate and re- 
stricted exercise in certain graduated duties under the 
act of 1898, and especially in the duties on legacies and 
distributive shares of personal property. It was no senti- 
mental or even theoretical argument based upon the right 
of inheritance or the inequality of taxation that led to the 
adoption of these duties in 1898; it was only a blind fol- 
lowing of the provisions of the earlier act and the con- 
sciousness that revenue must be had at every cost, and no 
possible source of income should be overlooked. Yet the 
legacy tax is essentially a tax of democracy and defensible 
for much the same reasons as a tax, whether graduated or 
not, upon income might be. 

By the act approved June 13, 1898, entitled " An act 
to provide ways and means to meet war expenditures, and 
for other purposes," the national Government imposed a 
tax upon legacies and distributive shares of personal prop- 
erty. This tax has been one of the features of the tax law 
of 1862 (§§ 111-114), but in a much simpler form and in 
a form better calculated to produce a revenue. This ear- 
lier law imposed a duty on all legacies exceeding one thou- 
sand dollars in amount, but very properly made a distinc- 
tion in the rate according to the degree of connection 
between the person from whom the property came and the 
receiver of the legacy. Thus, lineal issue, or lineal ances- 
tor, brother or sister, should pay at the rate of seventy-five 
cents for each and every hundred dollars of the clear value 
of the interest in the property. A descendant of a brother 
or sister of the decedent paid double this rate; an uncle 
or an aunt was taxed three dollars for every one hundred 
dollars passing; a great-uncle or a great-aunt, four dollars; 
and persons in any other degree of collateral consanguin- 
ity, or a stranger, or a body politic or corporate, five dollars. 
The only exemption made was in favour of a wife or hun- 
band. As only • personal property was intended to be 
reached, all land and real estate escaped the duty. 

The law of 1898 made important modifications in these 
rates and manner of assessing. In the first place, the 



LEGACY TAX. 621 

rates fell only on legacies in excess of $10,000, a limit ten 
times larger than that of the law of 1862= The degrees 
of relationship were the same, the rates were copied from 
those of the earlier act, and the same exemption of prop- 
erty passing between husband and wife was admitted. 
But the idea of a progressive tax was ingrafted into the 
law. Thus, the old rates applied only to legacies of more 
than $10,000 and not more than $25,000. When the prop- 
erty passing was valued between $25,000 and $100,000 the 
rates were multiplied by one and a. half; between $100,000 
and $500,000, they were multiplied by two; between 
$500,000 and $1,000,000, they were multiplied by two and 
a half; and by three when the property was in excess of 
$1,000,000. In restricting the tax to personal property 
passing by inheritance the measure aims at a crude means 
of making the burdens of personal more nearly approach 
those of real property. No such consideration controlled 
the views of those responsible for the act, and, after all, 
it offers only a question of theoretical interest. The in- 
heritance taxes collected in many of the States may have 
owed their adoption to such an idea, but the United States, 
in taking up these duties, merely saw a means of obtaining 
revenue without regarding the actual results of the tax 
on the estates paying it. 

" The inheritance tax in one form or another has come 
to stay, and new States are being added every year to 
the list of those which have adopted it. Five years ago it 
was found in only nine States of the Union — Pennsylvania, 
Maryland, Delaware, New York, West Virginia, Connecti- 
cut, Massachusetts, Tennessee, and New Jersey. During 
the first half of 1893 Ohio, Maine, California, and Michi- 
gan were added to the list, though the Michigan law was 
afterward annulled because of an unusual provision in the 
State Constitution which was not complied with. In 1894 
Louisiana revived her former tax on foreign heirs; Minne- 
sota adopted a constitutional amendment permitting a pro- 
gressive inheritance tax which has not yet been given 
effect by the Legislature; and Ohio added to her collateral 
inheritance tax a progressive tax on direct successions. In 
1895 progressive inheritance taxes were adopted in Illi- 
nois and Missouri, and an old proportional tax was re- 
vived in Virginia; and last year Iowa adopted in part 



622 THE THEORY AND PRACTICE OF TAXATION. 

the inheritance tax recommendation of her revenue com- 
mission." * 

The real problems are to be encountered in local taxa- 
tion. The many different methods nsed in the different 
States, the want of uniformity in the local divisions of 
each State, and the extraordinary diversity in the interpre- 
tation or application of tax laws by the courts and execu- 
tive authorities of the States have introduced a confusion, 
to end which, many would invoke the intervention of the 
Federal Government. The haphazard manner in which 
the laws have been framed and passed is only the least 
notable explanation of the variety of phrase and interpre- 
tation to be found. Even were the Federal Government 
to establish definitions, and frame uniform rules of assess- 
ment, there would still be room for difference. The cus- 
toms tariff is known to be variously applied in different 
parts of the country, and there is greater certainty in the 
tariff rate than could be found in a tax resting on the 
assessed valuation of land, for example. 

The difficulty encountered by France in its attempt to 
determine the net income from land for the purposes of 
taxation carries an important lesson. Failing to obtain 
uniformity of appraisement of this net income under the 
crude method first employed — of basing it on the charac- 
ter of soil and nature of cultivation, deducting the ex- 
penses of cultivation — a cadastre was decreed, f In this 
cadastre each particular piece of property was recorded, 
with its boundaries, its manner of cultivation, and its net 
rental. Begun in 1807, it was not completed until 1850, 
and proved of little value, as no provision had been made 
for recording the changes in cultivation, rentals, or other 
conditions, except those of ownership, buildings, and 
exemption from taxes. Instead of proving a successful 
means to a desired end, it " turned out to be a stupendous 
disillusionment." " The experience of both the western 
Prussian provinces and of France showed that the newly 

* Max West, in North American Review, May, 1897, p. 635. 

t The word cadastre was derived from the Latin capitastrum, 
or register of capita, griga, or units of territorial taxation into 
which the Roman provinces were divided for the purposes of 
capitatio terrena, or land tax. It is of modern use and is locally 
found in Louisiana. 



LAND CADASTRE. 623 

constructed cadastre was of considerable service in equaliz- 
ing the land tax within a relatively small area, but not as 
a basis for alterations in the contingents to be paid by large 
and widely separated regions. The officials in charge of 
the cadastre on the Khine, as well as those in France, 
themselves admitted that any computation of net income 
was uncertain; that the coincidence of the figures obtained 
by the cadastral computation with the actual net income 
could never be assured; that the figures afforded by the 
cadastre were rather of the nature of a proportion, while 
uniformity of assessment was to be attained rather by 
observation of the business transacted than by depending 
on the figures obtained by computation." * This effort 
to discover and record the net income from land was a 
failure. 

So thorough an experiment, carried through so long a 
time, and presenting an example to be avoided, was in fact 
imitated by Prussia under a law of 1865. In each division 
(Kreis) was appointed a commissioner, who was chairman 
of a committee, the size of which ranged from four to ten 
members, according to the size of the division. One half 
of this committee was appointed by the representatives of 
the division, and one half by the central Government. 
A number of divisions formed a department, with its com- 
missioner and committee of similar composition as in the 
division, and above all was a central committee, presided 
over by the Minister of Finance. The valuation was 
accomplished in less than four years. The method was 
applied only to land employed in agriculture or forests; a 
separate law provided for the taxation of buildings and 
gardens. In the end the results were no better than those 
obtained in France. In either case a plan too refined to 
work to advantage had been employed, and, apart from its 
simplest function, that of making a general survey of the 
land and the uses to which it was applied, it could not 
advance the theory of a proper land tax. No modification 
could make it a better instrument of taxation. The gross 
income from land as a taxing basis would involve heavy in- 
justice, and further supervision by government officers 
could not do away with the mechanical difficulties of secur- 

* Cohn. Science of Finance, p. 477. 



624 THE THEORY AND PRACTICE OF TAXATION. 

ing uniformity. The English plan of making rental value 
the foundation is more easily applied and gives better 
results. 

If land be difficult of assessment, personal property 
offers a very much more difficult problem. On this par- 
ticular question this country has much to learn from the 
experience of other governments. In Great Britain a 
Eoyal Commission has been making a study of local taxa- 
tion, and, in a preliminary report, concludes that an 
alteration in the law for the purpose of obtaining a uni- 
form basis of valuation in England and Wales is a neces- 
sary preliminary to any revision of the existing system of 
local taxation. It has been already stated that the poor 
rate constituted the basis of valuation of property for local 
rates. In its development the system has become more 
complicated. Two valuations of the same property may 
be made for raising imperial taxes — namely, one for the 
income tax and one for the land tax. Three valuations of 
the same property may be made for raising local rates — 
namely, one for the poor rate, one for the county rate, 
and one for the borough rate. Here, then, are five differ- 
ent valuations in activity. 

Of these the parish was the first and most important 
division, having been introduced in the sixteenth century, 
when the dissolution of the monasteries had raised the 
question of poor relief. It was adopted for convenience, 
as the contributions were at first entirely voluntary; but 
as the problem of the poor increased in importance, com- 
pulsion was applied, and at the beginning of the seven- 
teenth century, by the acts of Elizabeth of 1597 and 1601, 
compulsion was fully established and the parish adopted 
as the area for levying rates for the relief of its poor. It 
now became necessary to define more specifically the 
persons liable for this rate, but the law framed no system 
by which assessments were to be made or rates collected. 
A distinction was made between the occupier of certain 
properties (such as lands, houses, coal mines, or salable 
underwoods) and an inhabitant of the parish. The occu- 
pier was to be taxed upon the basis of the annual benefit 
arising from the property situated in the parish; but the 
inhabitant was taxed not in respect to any specified sub- 
jects, implying an intention to tax them upon some other 



LOCAL VALUATIONS IN ENGLAND. 625 

basis. This raised the question of " ability," and how that 
question was to be determined. The act said nothing that 
could point to personal property, " and it was only on the 
ground of his being an inhabitant that any owner of per- 
sonal property could be rated for that property, because 
there was no word in that statute to include him, except 
the word inhabitant. Under that statute, therefore, there 
was necessarily a distinction between residents and non- 
residents, because the resident would be ratable for his 
personalty within the place, the non-resident not. The 
distinction, however, under that statute applied only to 
those kinds of property which the statute did not specify, 
for the occupier of lands, houses, etc., and whatever the 
statute enumerated, was ratable whether he were resident 
or not." * And when the judge of assize was asked to 
give an opinion he decided that lands should be taxed 
equally and indifferently, but an additional tax could be 
laid on the " personal visible ability " of the parishioner. 
Further, " all things which are real, and a yearly revenue 
must be taxed to the poor." Yet there were limitations 
on this apparently wide interpretation, and as early as 
1633 it was only visible properties, both real and personal, 
of the inhabitants within the parish, and only within the 
parish, that could be taxed. The property to be assessed 
must be local, visible, and productive; it must consist only 
of the surplus left after deducting debts; it must be rated 
according to the profit produced; and its nature must be 
distinctly specified. " Consequently, such subjects as 
wages, pensions, easements, profits derived from labour 
and talent, profits from money invested or lent elsewhere, 
and furniture, were exempt." 

The absence of all attempts to tax or value property 
other than what was visible and tangible continued to the 
reign of Queen Anne, when a single decision of the court 
pointed to the taxation of the stock in trade of a trades- 
man, a decision that does not appear to have been acted 
upon. As late as 1775 Lord Mansfield said, " In general, I 
believe neither here nor in any other part of the kingdom 
is personal property taxed to the poor." At all events, it 

* Abbott (Chief Justice) in R. vs. The Hull Dock Company, 
3 B and C, p. 525. 



626 THE THEORY AND PRACTICE OP TAXATION. 

could not be taxed unless usage could support it. Toward 
the end of the century, when taxation for the Napoleonic 
wars was touching more intimately the concerns of the 
people, the idea of subjecting personal property to the 
poor rate was favoured, but nearly half a century passed 
before it attracted attention. In their report for 1843 on 
local taxation the poor-law commissioners gave the follow- 
ing summary of the status of this question: 

" The practice of rating stock in trade never prevailed 
in the greater part of England and Wales. It was, with 
comparatively few exceptions, confined to the old clothing 
districts of the south and west of England. It gained 
ground just as the stock of the wool staplers and clothiers 
increased, so as to make it an object with the farmers and 
other rate payers, who still constituted a majority in their 
parishes, to bring so considerable a property within the 
rate. They succeeded by degrees, and there followed 
upon their success a more improvident practice in giving 
relief than had ever prevailed before in England. . . . 
When the practice of rating stock in trade was fully estab- 
lished in this district, the ancient staple trade rapidly 
declined there and withdrew itself still more rapidly into 
the northern clothing districts, where no such burden was 
ever cast upon the trade." 

A final determination of the question was imposed 
upon Parliament by the pressure of the manufacturing 
and commercial classes arising from a decision in the case 
of E. vs. Lumsdaine, in 1839, looking to the taxation of 
personal property. In consequence, an act was passed 
(3 and 4 Vict., c. 89), and has remained in force until the 
present time, exempting an inhabitant from any tax " in 
respect of his ability derived from the profits of stock in 
trade or any other property, for or toward the relief of the 
poor." Thus it is that the English local taxation has man- 
aged to keep clear from the bog of assessing personal prop- 
erty, and the annual value of immovable property, such as 
lands and houses, within the parish has come to be selected 
as the simplest and most practical basis for assessments. 
The history is of high importance, because the basis of the 
poor rate was adopted as the basis for all other rates levied 
in local taxation. Whatever confusion has been intro- 
duced has arisen from other causes, such as the consti- 



MULTIPLE VALUATIONS. 627 

tuting poor-law unions containing more than one parish, 
the levying of county rates, a county having a boundary 
other than a parish or a union, and the assessing for rates 
by parish officers who acted independently of each other. 
Many efforts have been made to introduce a uniform sys- 
tem of assessment, but without success. One of the clear- 
est thinkers on this subject was Sir George Cornewall 
Lewis. In appearing before a committee on taxation, in 
1850, he said: "We have never recognised the principle 
of having one valuation for all the different rates. If that 
principle were once admitted, the inducement to have an 
accurate and complete valuation would be at its maximum, 
because then you would know that whatever charge might 
be imposed it would be imposed upon that valuation, 
whereas if there is one assessment for one rate and another 
assessment for another rate, and an amended assessment 
for a third rate, no one cares much about making any 
assessment perfect. This is one defect of the present 
system of valuation." 

The defect has persisted and become more aggravated 
each year. In 1870 a special commission came to the 
resolution that " the great variety of rates levied by differ- 
ent authorities, even in the same area, on different 
assessments, with different deductions and by different 
collectors, has produced great confusion and expense; and 
that in any change of the law as regards local taxation, 
uniformity and simplicity of assessment and collection, as 
well as of economy of management, ought to be secured 
as far as possible." When it is considered that for the five 
independent valuations for raising rates on property there 
are in England and Wales more than one thousand valua- 
tion authorities, the hopelessness of obtaining uniformity 
is apparent. With such a multiplicity of agents it is use- 
less to look for good results. There is no fixed or neces- 
sary time for making the valuation lists; no uniform 
system of or scale for making deductions for arriving at 
the ratable values of certain classes of property; exemp- 
tions and allowances are said to be given unduly, through 
undue pressure on the assessing authorities; and the 
assessment committees have no statutory power to ascertain 
from owners or occupiers the rentals and other particulars 
needed to determine values. The reforms needed are a 



628 THE THEORY AND PRACTICE OF TAXATION. 

geographical redistribution of taxing limits and uniform 
rules of assessments. 

If so great confusion can occur where the property to 
be valued for taxation is visible and tangible property, and 
where the principles underlying the assessment are few 
and comparatively simple, what is to be expected when 
the attempt to reach invisible and intangible property 
is added? 

Constitutional provisions have not secured equality of 
valuation, and the statute laws are powerless to make 
effective the sounding phrases of the Constitutions. 
" Property shall be assessed for taxes," says the Constitu- 
tion of New Jersey, " under general laws and by uniform 
rules, according to true value." The Assembly sought to 
embody this principle or rule in the laws of the State. 
" All real and personal estate within this State, whether 
owned by individuals or corporations, shall be liable to 
taxation at the full and actual value thereof, on the day in 
each year when by law the assessment is to commence." * 
Such assertions of the basis of taxation need no further 
explanation, for the intention of the framers of constitu- 
tion and law is unmistakable — equal and uniform taxation, 
a common burden involving a common obligation to dis- 
charge it. The practice at once creates the necessity for 
recognising the inaptitude of the instruments called upon 
to carry the law into execution. More than four hundred 
separate assessors and boards of assessors determine the 
taxable values upon no uniform system and in defiance of 
law and Constitution. " In practice they value real estate 
all the way from twenty-five to seventy-five per cent of its 
true value, depending on its location, income, etc., and 
their personal or political prejudices, and value different 
contiguous areas at different valuations, though of equal 
values really; and as to personal property, I regret to say, 
they appear to make no earnest or honest effort to reach it 
anywhere, except in the agricultural districts, and even 
there very imperfectly." f 

Enough has been said in these articles to show that 
this defect of method is not peculiar to one State, but is 



* General Statutes of New Jersey, p. 3929, section 62. 
f James F. Rusling, in the New Jersey report of 1897. 



ASSESSMENTS FOR LOCAL TAXATION. 629 

to be found in all. The remedies proposed or adopted 
have proved ineffectual to produce a better result. It is 
asserted that the more careful selection of the assessors, a 
higher salary for service, and a more strict accountability 
for their acts would introduce a reform; but this could, 
even under the most favourable of conditions, be only a 
partial reform. A State assessor with power to remove 
the assessors has been recommended, but this officer could 
not become so conversant with conditions throughout the 
State as to be able to decide on the many questions of 
assessments coming before him. Certain descriptions of 
property could be dealt with by such an officer and with 
an approach to fair and equal treatment. The valuation 
of the " main stem " of the New Jersey roads was made by 
civil engineers, and it is believed to have met the consti- 
tutional provision as to " true value." In the valuation of 
a vast quantity of other property no such expert knowledge 
could be applied, and especially is this true as to " personal 
property." Eeal estate might be approximately valued 
and a cadastre or record prepared, but after twelve months 
the most carefully compiled valuation would be out of 
date. Before personal property the assessor would still 
stand powerless. No multiplication of officers or no 
system of control over the many local assessors can solve 
this question in a manner satisfactory to justice to both 
State and taxpayer. 

It would seem, then, as if an abandonment of what has 
been regarded as almost essential features of the State tax 
systems alone offers relief. No such abandonment can be 
effected unless an adequate revenue from other sources be 
provided. The " general property tax," with its futile 
and laughable incompetency to reach the most profitable 
sources of revenue, should be modified, and even elimi- 
nated as far as is possible. The general principle under- 
lying it, of taxing every form of property, was suited only 
to a time when the bulk of a man's estate consisted in 
visible and tangible objects — lands, houses, live stock, and 
furniture. With every creation of a credit instrument, 
with the immense development of corporations, the prin- 
ciple has become weaker, until it now stands confesedly 
inapplicable to at least four fifths of the personal property 
in existence, and this proportion grows larger each year. 



630 THE THEORY AND PRACTICE OF TAXATION. 

The universal and admitted failure of the general prop- 
erty tax to attain good results and the great difficulty, 
indeed the impossibility, of reducing it to a form in which 
it can operate with efficiency and an approach to justice, 
must lead to its abolition and the gradual substitution of 
other and more simple taxes. However well adapted to a 
community in which the taxable property was in evidence 
and easily assessed for purposes of taxation, it becomes 
antiquated, unequal, and inquisitorial in a people where 
credit and credit investments have been highly developed, 
and where the greater social activities, whether in com- 
merce or industry, transportation or production, are con- 
ducted by corporations issuing various kinds of securities, 
none of which can easily be reached by a taxing authority 
away from the centre of incorporation. To undertake to 
include these securities, evidences of debt, or obligations 
in a general property tax is to invite evasion, put a heavy 
inducement on concealment, and, whenever effective, to 
give rise to shocking inequalities of burden. The widow 
and orphan, whose property is in the hands of a trustee, 
pay the full tax; in any other direction the holder of 
stocks or bonds, money or notes, escapes according to the 
elasticity of his conscience. The very exemptions recog- 
nised by law give an opportunity for new evasions, based 
upon analogy or upon some technicality under which the 
business is conducted. Bonds of the United States, the 
legal-tender notes, or money are beyond the reach of State 
authorities for the purpose of taxation. In the same cate- 
gory come also all imported goods in original packages, in 
the possession of the importers, and all property in transit. 
These exemptions alone amount to thousands of millions 
of dollars, and the tendency has been to increase the num- 
ber of items exempted. But every such exception under 
the law adds to the burdens of the honest taxpayer, and 
every evasion of taxation also renders his charge the 
greater. Here is not distributive justice, but concen- 
trated injustice. 

Another large proportion of the personal property 
owned by the citizens of the State is of the most intangible 
character, and in great part invisible and incorporeal, such, 
for instance, as negotiable instruments in the form of bills 
of exchange, State, municipal, and corporate bonds, and, if 



GENERAL PROPERTY TAX. 631 

actually situated in other States, exempt from taxation 
where they are held; acknowledgments of individual in- 
debtedness, and a number of similar matters. All property 
of this character is, through a great variety of circum- 
stances, constantly fluctuating in value; is offset by 
indebtedness which may never be the same one hour with 
another; is easy to transfer, and by simple delivery is, in 
fact, transferred continually from one locality to another, 
and from the protection and laws of one State to the sov- 
ereignty and jurisdiction of some other. It is not to be 
wondered, therefore, that all attempts to value and assess 
this description of property have proved exceedingly un- 
satisfactory, and that nearly every civilized community, 
with the exception of the States of the Federal Union, 
have long ago abandoned the project as something wholly 
inexpedient and impracticable. 

The differences among the States in the interpretation 
of residence, of the situs of the property taxed, are also 
an objection to this system and an obstacle to its applica- 
tion. The want of uniformity can not be abolished by 
enactments of law, because absolute uniformity of laws 
would not insure as uniform interpretation of their pro- 
visions. The rules for assessment are uniform for the 
officers of a State, but the returns made involve such dif- 
ferences in the application of the rules that one is forced 
to the conclusion that a misunderstanding of the spirit of 
the law exists, colouring differently the view of each re- 
turning officer. Discrimination against the county or 
municipality and discrimination against the individual are 
to be met at every turn. ~No wording of the law can elimi- 
nate this personal judgment of each assessing authority, 
and the supervision of the returns by State boards of 
equalization has introduced an even greater departure 
from justice, as a majority, based upon selfish interests, 
may be had, and its decision may readily be defended as 
based upon good and sufficient reasons. An appeal to the 
last resort, the higher courts, may produce redress against 
unjust assessments, but each case must be decided upon its 
merits, and only under very exceptional circumstances — as 
in the recent case at Tarrytown, New York, where striking 
and general, even personal, spite had been shown in the 
tax levy — can a number of taxpayers find it their interest 



632 THE THEORY AND PRACTICE OF TAXATION. 

to combine and carry the question into the courts for 
adjudication. 

Imperfect in theory, the machinery of the general 
property tax is imperfect. With at present fully two 
thirds of the personal property of the State exempted from 
taxation by law or by circumstances growing out of its 
condition, or the natural depravity and selfishness of the 
average taxpayer, and with a large part of the other third 
exempted by competing nations or neighbouring States, 
what becomes of the theory so generally accepted in the 
United States that in order to tax equitably it is necessary 
to tax everything? A very slight examination leads to 
the conclusion that it is the most imperfect system of taxa- 
tion that ever existed; that, with the exception of moneyed 
corporations, it is a mere voluntary assessment, which may 
be diminished at any time by an offset of indebtedness 
which the law invites the taxpayers to increase ad infini- 
tum, borrowing on pledge of corporate stocks, United 
States bonds, legal-tender notes, etc., all exempt from 
taxation; that its administration in respect to justice and 
equity is a farce and more uncertain and hazardous than 
the chances of the gaming table; and that its continuance 
is more provocative of immorality and more obstructive of 
material development than any one agency that can pos- 
sibly be mentioned. A stringent enforcement only leads 
to greater perversions and a wider evasion. A lax enforce- 
ment does not reduce its inequalities and general want of 
application to actual conditions.* 

The problem, then, is what taxes to introduce in 
place of this confessed failure of the general property 
tax. 

* The commissioners " have no confidence in any system of in- 
quisition or system which requires assessors to be clairvoyants; to 
ascertain things impossible to be ascertained by the agencies pro- 
vided in the law; to ascertain the indebtedness of the taxpayer: 
to ascertain or know who is the owner of property at a given 
time that can be and is transferred hourly from owner to owner 
by telegraph or lightning, and that may be transported into or 
out of the jurisdiction of the assessor with the rapidity of steam, 
or that requires assessors or taxpayers to make assessments on 
evidence not admissible in any court, civil or criminal, in any 
civilized country where witches are not tried and condemned by 
caprice or malice on village or neighbourhood gossip." 



SINGLE TAX. 

There can be little doubt that the desire for greater 
simplicity in taxation is generally felt, and in part put into 
practice. The mass of various kinds of imposts, added 
without any system or real connection or relation one to 
another, has often resulted in so large a number of charges 
on Government account as to defeat itself. The French 
taxes at the end of the last century, with their added fault 
of inequality and injustice in distribution, led naturally to 
the theory of a single tax — the impot unique of the physio- 
crats — which did not become a fact, yet registered the 
protest against the multiplicity and crying oppressiveness 
of the remains of feudal dues and fiscal experiments under- 
taken under the stress of an empty treasury. So it has 
been noted at the present time that where an opportunity 
has offered there is a tendency in European countries to 
simplify their taxes, and, as in the case of Switzerland, 
prepare the way for income and property taxes. It is a 
greater dependence on such direct taxes in place of indirect 
taxes that has distinguished the great fiscal changes in 
recent years. Germany may have wished to establish a 
brandy monopoly, and Russia may resort to a monopoly of 
the manufacture and sale of distilled spirits. But Eng- 
land increases her death duties, France and the United 
States seek to frame acceptable taxes on income, and 
Switzerland succeeds in modifying her system in the line 
of direct taxes. 

There is an earnest movement in favour of a single 
tax on the value of land, exclusive of other real property 
connected with it. As involving a question of abstract 
justice the proposition has much in its favour, but it can 
not be denied that practical obstacles oppose its adoption. 
The recent commission on taxation in Massachusetts thus 
treats of it: " It proposes virtually a radical change in the 
ownership of land, and therefore a revolution in the entire 
social body. In this form of taxation all revenue from 
land alone is to be appropriated — that is, the beneficial 
ownership of land is to cease. Whether or not this sys- 
tem, if it had been adopted at the outset and had since 
been maintained, would have been to the public advantage 
may be an open question, but it would certainly seem to be 
too late now to turn to it in the manner proposed. In any 
event, it involves properly not questions of taxation, but 
41 



634 THE THEORY AND PRACTICE OF TAXATION. 

questions as to the advantage or disadvantage of private 
property in land." * 

If securities are to be taxed, the methods adopted 
should avoid a double taxation, and an attempt to reach 
capital outside of the State. It is evident that a State, 
like Massachusetts, which taxes the foreign holder of 
shares in its corporations as well as the shares of foreign 
corporations held by its own citizens, is inviting a danger- 
ous reprisal from other States. " Wherever the owner 
may be, if the corporation is chartered within the State 
the Commonwealth collects the tax on the shares. Wher- 
ever the corporation may be, if the owner is within the 
State the Commonwealth also collects the tax (in theory 
of law at least)." If this be the best possible system, and 
it is supposed Massachusetts assumes it to be, general 
double taxation would follow its adoption by the other 
States. The effort to carry this rule into practice proves 
its injustice as well as futility. The most searching and 
inquisitorial methods of seeking such property will not 
avail to reach a good part of it, and this results in adding 
inequality of burden to its other difficulties. Evasion is 
too simple a process to be unused, and the heavier the rate 
of tax the greater will be the resort to evasion and even to 
perjury, express or implied. The fundamental cause of 
the failure lies in this, " the endeavour to tax securities, 
which are no more than evidences of ownership or interest 
in property, and which offer the easiest means of conceal- 
ment and evasion, by the same methods and at the same 
rate as tangible property situated on the spot." 

This inherent difficulty can be cured only by abandon- 
ing the attempt to tax directly securities or evidences of 
debt, representing ownership or interest in property be- 
yond the limits of the taxing authority. In the case of 
the securities of home companies they may be readily 
taxed at the source, but in the case of foreign corporations 
it is only by methods almost revolting in their injustice 
and treatment of the taxpayer that even a partial success 
can be secured. The dependence upon the sworn state- 
ment or declaration of the taxpayer is known to be ex- 
tremely faulty and to offer a premium on untruthfulness. 

* Report of the Massachusetts Commission, 1897, p. 74. 



BUILDING-OCCUPANCY TAX. 635 

So long as this dependence is retained in whole or in part 
in a system for taxing personal property, the results must 
be unsatisfactory. The most judicious, even if it seems 
the most radical, remedy is to abandon the taxation of 
securities. Certainly it would be well to put an end to 
the Massachusetts plan of taxing securities representing 
property outside of the State, for that involves double 
taxation wherever it has been possible to impose the tax. 
What can be reached only by methods at all times trying 
and difficult, and sometimes very demoralizing, should not 
be permitted to remain a permanent feature of the revenue 
system of a State. 

The New York commission of 1870 proposed to limit 
the State taxes to a very small number of objects. That 
they be " levied on a comparatively broad basis — like real 
estate — with certainty, proportionality, and uniformity on 
a few items of property, like the franchises of all moneyed 
corporations enjoying the same privileges within the State, 
and on fixed and unvarying signs of property, like rental 
values of buildings " — such was the scheme proposed. 
The leading object to be attained was equality of burdens, 
and a second object of quite as great importance was sim- 
plicity in assessment and collection. Granting that real 
estate, lands, and buildings were taxed on a full and fair 
market valuation, and that corporations contributed their 
share toward the expenses of the State, it remained to 
devise a tax that should reach all other forms of property 
that could be properly and easily assessed. This tax was 
to be known as the " building-occupancy " tax, and was to 
be levied on an additional assessment of a sum equal to 
three times the annual rent or rental value of all the build- 
ings on the land.* Nearly thirty years later the Massa- 

* The New York commission of 1870 submitted two propositions 
on this point: 

1. Tax the house or building as real estate separately, at the 
same rate of valuation as the land- — that is, fifty per cent — and then 
assuming that the value of the house or building, irrespective of its 
contents, be such contents furniture, machinery, or any other chat- 
tels whatsoever, is the sign or index which the owner or occupier 
puts out of his personal property, tax the house or building on a 
valuation of fifty per cent additional to its real-estate valuation, 
as the representative value of such personal property; or, in other 
words, tax the land separately on fifty per cent of its fair market- 



636 THE THEORY AND PRACTICE OF TAXATION. 

chusetts commission proposed a modified form of this tax. 
An annual rental value of four hundred dollars was to be 
exempt from taxation, but ten per cent was to be levied on 
all rental values in excess of that amount. 

" The advantages of a tax on house rentals," said the 
commission, " can be easily stated. It is clear, almost im- 
possible of evasion, easy of administration, well fitted to 
yield a revenue for local uses, and certain to yield such a 
revenue. It is clear, because the rental value of a house 
is comparatively easy to ascertain. The tax is based on a 
part of a man's affairs which he publishes to all the world. 
It requires no inquisition and no inquiry into private 
matters; it uses simply the evidence of a man's means 
which he already offers." * If this tax were to be given it 
would be possible to wipe out all the tax on incomes from 
" profession, trade, or employment," to abolish the exist- 
ing assessments on personal property. The effects would 
be far-reaching. If loans of money are free from taxation, 
the purchasing power of money in the same degree must 
diminish, which simply means that the purchasing power 
of farms and products of farms for money must to the same 
extent increase; hence, the borrower on bond and mort- 
gage will not be subject to double taxation — first, in the 
form of increased rate of interest, and then in taxation of 
his real estate — and hence the farmer or landowner who 
is not in the habit of either lending or borrowing money 
will find his ability to meet additional taxation on his land 
increased in additional value of land and products of land 
in proportion as the tax is removed from money at interest. 
Also, the exemption of the products of farms and things 

able valuation, and tax the building apart from the land, as repre- 
senting the owner's personal property, on a full valuation, as indi- 
cated by the rent actually paid for it or its estimated rental value. 
Or— 

2. Tax buildings conjointly with land as real estate at a uniform 
valuation; and then as the equivalent for all taxation on personal 
property, tax the occupier, be he owner or tenant of any build- 
ing or portion of any building used as a dwelling, or for any other 
purpose, on a valuation of three times the rental or rental value 
of the premises occupied. Tenement houses occupied by more than 
one family, or tenement houses having a rental value not in excess 
of a fixed sum, to be taxed to the owner as occupier. — Report, 
p. 107. 

* Massachusetts Report, p. 106. 



TAX ON RENTAL VALUE. 637 

consumed on farms from taxation will give a corresponding 
increased value to compensate for the " building-occu- 
pancy " tax. Tenants controlled by all-pervading natural 
laws can and will give increased rents, if their personal 
property is exempt primarily from taxation. The average 
profits of money at interest or of dealings in visible per- 
sonal property free from taxation can not exceed, for any 
considerable length of time, the average profits of real 
estate, risk of investment and skill in management taken 
into consideration; and therefore the real pressure of taxa- 
tion under the proposed system will finally be, like atmos- 
pheric pressure, or pressure of water, on all sides, and by a 
natural uniform law executed upon all property in every 
form used and consumed in the State. Persons must oc- 
cupy buildings and business must be done in buildings, and 
through these visible instrumentalities capital can be 
reached by a rule of fractional uniformity, and by a sim- 
ple, plain, and economical method of assessment and col- 
lection. 

This building-occupancy tax, or tax on rental value, 
does not preclude a supplementary tax on corporations. 

Much as has been said of the onerous burdens of taxa- 
tion endured by individuals compared with those of cor- 
porations, and especially corporations enjoying certain 
rights or franchises in public streets and highways or cor- 
porations of a more or less public character. The phe- 
nomenal growth of municipalities has been one of the 
notable social movements of the last twenty-five years. 
The drift of population from the country districts to cities 
has increased with each year, and finds an explanation in 
many causes. The opportunities offered in a city for 
advancement are greater and more numerous; the monot- 
ony of farm life does not keep the young at home, but 
drives them for excitement and profit to the great centres 
of population. The economic changes of a half century 
also have their influence. The competition of new re- 
gions, better adapted for certain cultures on a commer- 
cial scale, has reduced the profitableness of older and more 
settled localities, where comparatively costly methods 
must be resorted to if the fertility of the land is to be 
maintained. The wheat fields of the West narrowed the 
margin of profit in New England farming, while the sheep 



638 THE THEORY AND PRACTICE OF TAXATION. 

and cattle ranges of the West made it impossible for the 
same quality of live stock to be raised for profit in the East. 
Farms were abandoned, and the younger blood went West 
to grow up with the country, or into the cities to struggle 
for a living. Further, the advances in agriculture, the 
application of more productive methods, and the intro- 
duction of machinery have reduced the demand for labour 
in the rural districts, and this has led to a migration to the 
cities. 

The result of this has been an immense development of 
city life, and with it an ever-increasing field for invest- 
ment in corporate activities. The supply of water is 
usually in the city's control, but the manufacture and sale 
of gas, the production and distribution of electricity, the 
street railways, telegraph, and telephone interests are 
private corporations formed for profit and using more or 
less the public highways in the conduct of their various 
enterprises. A grant of a street or highway for a railway 
or electric-wire subway generally involves a monopoly of 
that use, and the privilege or franchise may become more 
valuable with the mere growth in the population of the 
cities. Assured against an immediate competition, there 
is a steady increment in the value of the franchise, and in 
the case of a true monopoly there seems to be no limits to 
its possible growth. 

An instance of this nature is so striking in its relations 
and so pertinent to the present discussion that attention is 
asked to it. In the reign of James I water was supplied 
by two or three conduits in the principal streets of London, 
and the river and suburban springs were the sources of 
supply. Large buildings were furnished with water by 
tapping these conduits with leaden pipes, but other build- 
ings and houses were supplied by " tankard bearers/' who 
brought water daily. A jeweller of the city, Hugh 
Myddleton by name, believed something better could be 
done, and he proposed to bring water from Hertfordshire 
by a "new river." He embarked in the undertaking, 
sank his fortune in its conduct, and appealed to the king 
for assistance. James granted this aid, taking one half of 
the shares of the company — thirty-six out of the seventy- 
two shares into which it was divided. The shares that 
remained received the name of "adventurer's moiety." 



DEFINITION OF FRANCHISE. 639 

The work was completed in 1613, and water was then let 
into the city. 

So little was the measure appreciated that its first 
years were troublous ones for the shareholders. The 
squires objected to the river, believing it would overflow 
their lands or reduce them to swamps and destroy the 
roads. The city residents adopted the use of the water 
slowly. The shares were nominally worth £100 apiece, 
but for nearly twenty years the income was only 12s., or 
$3, per share. In 1736 a share was valued at £115 10s., 
and by 1800 it had risen to £431 8s. With the first years 
of this century the company prospered, and its benefits 
were widely applied, reflecting this change in the value of 
its capital. In 1820 a share was worth £11,500 and in 
1878 the fraction of a share was sold at a rate which 
made a full share worth £91,000. In 1878 the dividend 
distributed to each share was £2,610. Eleven years later, 
in July, 1889, a single share was sold for £122,800, or 
nearly $600,000. The nominal capital of the company in 
1884 was £3,369,000, and besides its water franchise it 
held large estates and valuable properties. While the 
actual real estate controlled by the corporation accounts 
for some of this remarkable rise in the value of the shares, 
a greater and more lasting cause was the possession of an 
almost exclusive privilege or franchise which assured a 
handsome and ever-increasing return on the investment. 
Had all the other property been deducted from the state- 
ment of the company's assets, there would have remained 
this intangible and unmeasurable right created and con- 
ceded by its charter and long usance. 

A definition of a franchise has been given by the 
Supreme Court in terms of sufficient general accuracy to 
be adopted: " A franchise is a right, privilege, or power of 
public concern which ought not to be exercised by private 
individuals at their mere will and pleasure, but which 
should be reserved for public control and administration, 
either by the Government directly or by public agents act- 
ing under such conditions and regulations as the Govern- 
ment may impose in the public interest and for the public 
security." * A necessary condition, then, is a public inter- 

* California vs. Southern Pacific Railroad, 127 U. S., 40. 



640 THE THEORY AND PRACTICE OF TAXATION. 

est in the occupation or privileges to be followed. The 
good will of a person or individual trader is not a franchise 
in this sense, though a franchise may be enjoyed by an 
individual as well as by a corporation, and good will may 
rest upon the privilege implied in the franchise. 

The recognition of franchises, a species of property " as 
invisible and intangible as the soul in a man's body," as a 
proper- object for taxation is now regarded by many as 
beyond any dispute. It is peculiarly appropriate as a 
source of revenue for the exclusive use of the State, 
inasmuch as the grant of franchises emanates from 
the State in its sovereign capacity. In the case of 
Morgan vs. The State of Louisiana, Justice Field, of 
the Supreme Court of the United States, said: " The 
franchises of a railroad corporation are rights or priv- 
ileges which are essential to the operation of the cor- 
poration and without which its roads and works would be 
of little value, such as the franchise to run cars, to take 
tolls, to appropriate earth and gravel for the bed of its 
road, or water for its engines, and the like. They are posi- 
tive rights or privileges, without the possession of which 
the road or company could not be successfully worked. 
Immunity from taxation is not one of them." * Further, 
the extent to which this taxation of franchises may be 
carried rests entirely in the discretion of the taxing power, 
subject only to constitutional restrictions. 

The great difficulty in applying such a tax lies in the 
methods of reaching an understanding on the value of the 
franchise. How can this indefinite something be made 
visible on the tax books? In many instances the franchise 
may be regarded as inseparable from the real property of 
the corporation. The rails of a tramway, the poles and 
wires of a telegraph company, the pipes and conduits of a 
gas company, are real and tangible things, necessary to a 
proper conduct of the respective functions of the corpora- 
tions. But the right to lay tracks in the public streets, to 
sink pipes under the streets, or to string wires overhead 
is as necessary a possession and as essential to the perform- 
ance of what the corporation was created to accomplish. 
Whether this permits the franchise to be regarded as " real 

* 93 U. S. Reports, pp. 217, 224. 



NEW YORK FRANCHISE LAW. 641 

estate " and so offers it for taxation is a question of some 
theoretical interest, but of little practical importance.* 
Unless the franchise is regarded in this way, as belonging 
to real estate, or as forming a taxable entity apart from 
other property, it would be simpler to reach it through 
a corporation tax in one of the many ways open for apply- 
ing that tax. 

Enough has been said to demonstrate the extremely 
faulty condition of tax methods in the United States. 

* A recent law of New York is very full on this point : 
" The terms ' land,' ' real estate,' and ' real property,' as used in 
this chapter, include the land itself above and under the water, all 
buildings and other articles and structures, substructures, and 
superstructures, erected upon, under, or above, or affixed to the 
same ; all wharves and piers, including the value of the right to col- 
lect wharfage, cranage, or dockage thereon; all bridges, all tele- 
graph lines, wires, poles, and appurtenances; all supports and in- 
closures for electrical conductors and other appurtenances upon, 
above, and under ground; all surface, underground, or elevated rail- 
roads, including the value of all franchises, rights or permission to 
construct, maintain, or operate the same in, under, above, on, or 
through streets, highways, or public places; all railroad structures, 
substructures, and superstructures, tracks, and the iron thereon, 
branches, switches, and other fixtures permitted or authorized to be 
made, laid, or placed on, upon, above, or under any public or private . 
road, street, or grounds; all mains, pipes, and tanks laid or placed 
in, upon, above or under any public or private street or place for 
conducting steam, heat, water, oil, electricity, or any property, 
substance, or product capable of transportation or conveyance 
therein, or that is protected thereby, including the value of all 
franchises, rights, authority, or permission to construct, maintain, 
or operate in, under, above, upon, or through any streets, highways, 
or public places; any mains, pipes, tanks, conduits, or wires, with 
their appurtenances, for conducting water, steam, heat, light, power, 
gas, oil, or other substance, or electricity for telegraphic, telephonic, 
or other purposes; all trees and underwood growing upon land, and 
all mines, minerals, quarries, and fossils in and under the same, 
except mines belonging to the State. A franchise, right, authority, 
or permission, specified in this subdivision, shall for the purposes 
of taxation be known as a ' special franchise.' A .special franchise 
shall be deemed to include the value of the tangible property of 
a person, copartnership, association, or corporation, situated in, 
upon, under, or above any street, highway, public place, or public 
waters, in connection with the special franchise. The tangible 
property so included shall be taxed as a part of the special fran- 
chise." The reason for classing franchises as real estate was that 
under the existing laws of New York a franchise could not be 
assessed as personal property, as the bonded debt could then be 
deducted, leaving little or nothing to be taxed. 



642 THE THEORY AND PRACTICE OF TAXATION. 

Uniformity is highly desirable, but equality of burden is 
even more to be desired. The advances in this direction 
have been few, and accomplished only partially in a few 
States. The machinery for making assessments is only a 
part of the problem, as the intention of the law, the 
spirit of the act, is of even higher importance in securing 
justice and moderation. If these essays, incomplete as 
they must of necessity be, have led to a better comprehen- 
sion of the chaotic condition existing now and of the diffi- 
culties to be overcome, their object will have been attained. 
The remedy may be left for time to effect. 






INDEX 



Actualities, subject to taxation, 472. 

Adoram, 66. 

Alcavala, 74; in Mexico, 135, re- 
peal, 140. 

Alcohol, free in the arts, 11 ; Swiss 

• monopoly, 187. 

Alienation of taxing power, 279. 

Allen vs. Jay, 292. 

Anthropology and taxation, 72. 

Anti-option bill, 260. 

Anticipation of taxes, 36. 

Apportionment of direct taxes in 
United States, 236, 357, 367, 547, 
549. 

Arabi Pasha, revolt under, 143. 

Argyll, Duke of, on taxation, 598, n. 

Aristotle on majority rule, 86, n. 

Assessments, in Eome, 97 ; in early 
Massachusetts, 244; of personal 
property, 402 ; for local taxation, 
628 ; uniform day, 406. 

Athens, sources of revenue, 85. 

Atkinson, Edward, estimate, 33 ; defi- 
nition of tax, 202 ; taxes on produc- 
tion, 390. 

Augustus, taxes imposed by, 89. 

Austria-Hungary, general taxes, 197, 
n. ; taxation of income, 522, 538. 

Bachelors, taxation of, 95, 331. 

Bacon, Theodore, on protection, 315, n. 

Baron's war, 286. 

Beards, taxation of, 198, n. 

Bengal, land assessment, 164. 

Beer, internal duty, 56 ; consumption, 

58. 
Beet sugar, bounties, 307. 
Bluntschli, on taxation, 598, n. 
Boadicea, revolt of, 93. 
Boards of equalization, 397. 
Boisguillebert, 126. 



Bond case, foreign-held, 452. 
Bonds, government, exempted, 481. 
Borax lands, 587. 
Bounties, constitutional aspects, 302, 

306 ; perversion of, 309 ; on sugar, 

299, 307. 
Boyd vs. United States, 518. 
Brazil, taxation in, 155. 
Breadstutfs and population, 596. 
Brown, Justice, quoted, 3, n. 
Brown vs. Maryland, 276. 
Building-occupancy tax, 635. 
Burke, Edmund, on theory, 225, n. 

Cadastre in France and Prussia, 622. 

Cade, Jack, 67. 

Caesar, render unto, 72. 

California, Constitution of 1879,422; 
taxation of mortgages, 487 ; taxation 
of titles, 474. 

Canada, commercial relations with, 
581, n. 

Cantons of Switzerland, 184. 

Capital and property, 467 ; taxation 
of, 521 ; outflow of British, 2. 

Carey, Henry C, on indirect taxation, 
349 ; on taxation of industry, 217. 

Carriage tax (United States), 360. 

Castine, Maine, customs question, 311. 

Ceylon, poll tax in, 333. 

Chase, S. P., estimates of revenue, 25, 

Charters as contracts, 279. 

Chattels real and personal, 444. 

China, budget of, 77 ; customs reve- 
nue, 78 ; land ownership, 76 ; land 
tax, 77 ; likin, 78 ; remission of 
taxes, 78 ; salt monopoly, 78 ; ter- 
minal tax, 79 ; transit passes, 78. 

Choses in action, taxation of, 485. 

Cicero against Verres, 70. 

Circulation, tax on bank, 263. 

643 



644 THE THEORY AND PRACTICE OF TAXATION. 



City and country, 561. 

Class legislation, 9, 551. 

Clergy on taxation, 6. 

Cleveland, President, quoted, 250, 
262, 11. 

Coffee import returns, 1865, 36. 

Cole vs. La Grange, 293. 

Col well, Stephen, 20. 

Commerce, interstate, 275; taxation 
of instruments of, 412. 

Compulsion and direct taxes, 341. 

Congress as a disturbing influence, 
619. 

Connecticut, franchises in, 280 ; tax 
experience, 415, 493. 

Constitution, United States, forma- 
tion of, 69 ; apportionment under, 
357, 367, 547; on taxation, 545; 
Fourteenth Amendment, 508. 

Constitutions, State, 239, 628. 

Consumers pay customs duties, 577. 

Consumption, taxation falls on, 597. 

Contracts, tax on, 274. 

Convention, constitutional, 234, 357, 
547. 

Cooley, Thomas M., quoted, 289, 305. 

Copper, import duty on, 258. 

Copyrights as property, 464. 

Corporations, municipal, and taxa- 
tion, 242. 

Corvee, in France, 124 ; in Egypt, 
142, 146. 

Cossa, Luigi, on taxation, 63. 

Cost of production, taxes enter into, 
583. 

Cotton, profits on, during famine, 32. 

Country and city compared, 561. 

Court of the Exchequer, 108, n. 

Credits as property, 450. 

Crows and bounties, 309. 

Cuba, taxation in, 14. 

Cuissage, 124. 

Curtis, George T., on protective du- 
ties, 260, n. 

Customs, 379. 

Debt, deduction for, 375; situs of, 
498 ; taxation, 479, 493. 



Deeds as property, 469. 

Definitions, want of, 7. 

Democracy and taxation, 16. 

Denmark, taxation of income, 523. 

Desmarets, 127. 

Dice, tax on, 327. 

Diffusion of taxes, 569 ; law of, 584, 

597 ; customs, 575 ; land tax, 589. 
Distilleries, number of, in United 

States, 46. 
Dixme Roy ale, 125. 
Dodgers of taxation, 433. 
Domain, eminent, 238. 
Domains, royal, 102. 
Dooming in Massachusetts, 431, 530. 
Droit du seigneur, 124. 
Druids, revenue methods, 101. 

Egypt, 141 ; corvee in, 142, 146 ; debt 
of, 144 ; fiscal commission, 145 ; land 
tax, 147 ; reforms, 150 ; repeal of 
taxes, 147, 152. 

Emerson, E. W., quoted, 62, n. 

England, in Egypt, 143, n. : excise, 
114 ; feudal taxes, 108 ; indirect 
taxes, 113 ; land tax and American 
Eevolution, 115; meal tax, 115; 
poll tax, 331 ; representation and 
taxation, 110; revolution, 68; tenure, 
108. See Great Britain. 

Ensley, Enoch, rules of taxation, 556. 

Equalization, boards of, 397. 

Erie Eailroad opera house, 252. 

Europe, sugar bounties, 308. 

Excise, 380. 

Exemption, 411, 481, 541, 602. 

Expediency in taxation, 15. 

Extradition and tax violations, 312. 

Extravagance, cost of, 241. 

Farm-rating act, Great Britain, 540. 

Farmers' Alliance, Maryland, 15. 

Farmers-general, France, 129. 

Farming of taxes, 605. 

Fiction, legal, 441, n. 

Field, Stephen J., on income tax, 

553. 
Fines, feudal, 106 ; in Greece, 86. 



INDEX. 



645 



Fish, royal, 107. 

Fisheries, encouragement of, 302. 

Fraction of a day in law, 319, n. 

France, cadastre, 622; corvee, 124; 
exemption of clergy, 120; gabelle, 
or salt tax, 121 ; income tax, 517, 
538; indirect taxes, 121; list of 
taxes, 123; mobiliary tax, 519; re- 
forms offered by Vauban and Bois- 
guillebert, 125 ; ^Revolution in, 69, 
128 ; taille, 119 ; taxation in, 76, 117 ; 
transfers, 123 ; window tax, 519. 

Franchise, definition, 639 ; taxation, 
379, 637. 

Gabelle, in France, 121. 

Garfield, James A., on Mr. Wells, 39. 

George, Henry, 66. 

Germany, bounties on sugar, 308; 
exemptions under income tax, 537. 

Godkin, Edwin L., on protection, 
253, n. 

God's truce, 101. 

Great Britain, direct taxes, 356 ; false 
idea of taxation, 574 ; income tax, 
525 ; local taxation, 392, 624 ; per- 
sonal property, 625 ; revenue by 
taxation, 14. See England. 

Greece, decline of, 67 ; taxation in, 85. 

Greeley, Horace, quoted, 60. 

Guyot, Yves, on income tax, 520. 

Hamilton, Alexander, on carriage tax, 

362 ; on taxation, 400. 
Hayes, S. S., 20. 
History, taxation in, 66, 74. 
Hoar, George F., quoted, 253, n. 
Holland, taxation in, 74. 
Hylton vs. United States, 360. 

Ideas as property, 465. 

Illinois, tax theories, 10. 

Imposts, 380. 

Impbt unique, 633. 

Income, taxation of, 514; direct tax, 
363; discriminating tax od, 533; 
Austria-Hungary, 522, 538; Den- 
mark, 523 ; France, 517, 519 ; Ger- 



many, 524; Great Britain, 525; 
India, 169; Italy, 540; Borne, 518; 
Switzerland, 523 ; United States, 
305, 528, 545. 

Indebtedness, taxation of, 479, 493. 

India, British, customs duties, 168 
excise, 167 ; food of people, 177 
income tax, 169; land tax, 163 
opium, 166, 174; population, 158 
poverty, 159 ; salt duty, 165 ; stamps, 
168 ; taxation, 76, 158 ; trade in 
treasure, 173, n. 

Inequality of taxation, 323. 

Inheritance tax, 621. 

Internal revenue, United States, 26, 
33, 619. 

Investments, inducements to, 559. 

Ismail Pasha, career of, 144. 

Italy, income tax, 540 ; oppressive 
and dishonest methods, 228. 

Japan, land tax, 82 ; poverty, 81 ; 

taxation, 80 ; treaties, 83. 
Jefferson, Thomas, quoted, 3, n. 
Jews, taxation among, 66, 70 ; plunder 

of, 104. 

Kirtland vs. Hotchkiss, 493. 
Kleber, General, in Egypt, 155. 

Labour, as source of wealth, 462, 587. 

Land, and personal property, 419 ; 
direct taxes, 368 ; incidence of tax, 
587; feudal duties, 102; taxation in 
China, 77 ; Egypt, 148 ; India, 163 ; 
Japan, 82 ; tenures, 75 ; value of, 
558, 587. 

Law, economics and, 7. 

Legacy tax, in Borne, 89 ; in United 
States, 620. 

Legislation, class, 9, 551. 

Leroy-Beaulieu, Paul, on French 
taxation, 14, n. ; on income tax, 539. 

Lewis, George Cornewall, on valua- 
tions, 627. 

Likin, in China, 78. 

Lincoln, Abraham, quoted, 19. 

Literature, taxation in, 73. 



Q4:6 THE THEORY AND PRACTICE OF TAXATION. 



Liturgies in Greece, 87. 

Loan Association vs. Topeka, 231, 

294. 
Local taxation in Great Britain, 391, 

624. 
Locke, John, on taxation, 601, n. 
London water supply, 638. 
Loti shui in China, 79. 
Lotteries, State, 605 ; taxation of, 262. 
Loubet on French taxation, 14. 
Louis XIV, 127, 223. 
Lowell vs. Boston, 289, 291. 
Lowrey on protection, 315, n. 

Macleod, H. Dunning, on property, 
451. 

McCulloch vs. Maryland, 269. 

McCulloch, Hugh, 19, 39, n. 

Madison, James, on direct taxes, 
547, n. 

Magna Carta, 111, 285. 

Malthus, theory in India, 159. 

Manslield,Lord, decision on slavery,7. 

Manufactures, State intervention, 252 ; 
taxing, 26. 

Maryland Farmers' Alliance, 15. 

Massachusetts, dooming in, 431 ; early 
provisions for assessing, 244; gen- 
eral property tax, 393 ; numbers of 
taxpayers, 572 ; poll taxes, 337 ; tax 
commission, 435 ; taxation of in- 
comes, 529. 

Matches, stamp tax, 349. 

Material, raw, definition of, 59. 

Menier on discriminating taxes, 387 ; 
on meaning of words, 201. 

Mercantile system, 114. 

Mexico, Alcavala, 135 ; customs, 132 ; 
land tenure, 139 ; repeal of transit 
duties, 140 ; taxation, 130. 

Middle ages, taxation in, 100; land 
tax, 102. 

Mill, John Stuart, discriminating tax- 
ation, 387 ; on direct taxes, 351. 

Minorities, rights of, 553. 

Mississippi, suffrage in, 340. 

Mbbilia personam sequuntur, 440. 

Moriey, taxation of, 477, 563. 



Monopolies and indirect taxes, 348; 

State, 606. 
Morality and taxation, 5 ; commercial, 

432 ; standard of, 415. 
Mortgage, definition of, 478 ; in Rome, 

480 ; taxation in California, 487 ; in 

New Jersey, 479. 
Myddleton, Hugh, 638. 

Navicular^ of Rome, 94. 

Necessity as a check on taxation, 243. 

New Jersey taxation of mortgages, 
479 ; local taxation, 628. 

New River Company, 638. 

New York, number of taxpayers, 571 ; 
source of wealth, 562; tax commis- 
sion, 61 ; taxation of, 520. 

Nile, cleaning of the, 146. 

Oaths, use and value, 432. 

Octroi in Italy, 228, n. 

Officeholding in Greece, 87. 

Ohio, assessment of corporations, 314 ; 
tax experience, 424; taxation of 
money, 532, n. 

Oleomargarine, taxation of, 257. 

Olney, Richard, argument on income 
tax, 369. 

Opdyke, George, on direct taxes, 351, 
n. ; 352. 

Opium duty, 166 ; movement to sup- 
press, 174. 

Options, legislation on, 260. 

Our burden and our strength, 18. 

Package, original, decision, 276. 

Paper money, idea of, 30, n. 

Paris, taxation of, 520. 

Parish, as tax unit in Great Britain, 

624. 
Parliament, origin of, 109. 
Patten, Simon N, proposition on 

taxes, 265. 
Pennsylvania, poll taxes, 338: tax 

laws, 441. 
Pension, in United States, 3, 17. 
People vs. Township, 289. 
Perjury, 6, n., 74. 
Persia, taxation in, 213, n. 



INDEX. 



647 



Personal property and real, 374, 398, 
401; assessment of, 402; exemp- 
tions, 411. 

Peter's pence, 67. 

Plymouth Company, 233. 

Police and taxation, 254. 

Poll tax, 330 ; mark of inferiority, 334 ; 
suffrage, 335. 

Population and taxation, 546 ; increase 
in Japan, 81 ; Malthusian theory in 
India, 159. 

Possession, meaning of, 461. 

Prices and taxation, 40, 218. 

Process of law, due, 510. 

Production, burden of taxation on, 
390 ; cost of, 583. 

Profits and taxation, 600 ; decrease of, 
4 ; diffusion of, 557, 586 ; in tax 
legislation, 31, 43. 

Progression in taxation, 388. 

Property, definitions of, 451, 460 ; 
credits as, 450, 467; movable and 
immovable, 556; general tax, 392, 
428, 435, 629. 

Proportional taxation, 320. 

Protection and taxation, 315, 456 ; 
policy in the United States, 258, 
612. 

Prussia, cadastre, 622 ; taxation of in- 
comes, 524. 

Ptolemy V, 154. 

Public purposes, what are, 288. 

Publicans of Rome, 71, 91. 

Eailroads as " public purposes," 297. 

Real property, assessment of, 396 ; 
taxation of, 374, 395. 

Reciprocity, 614. 

Kent of land, 590 ; tax on house, 635. 

Rents in kind, 110. 

Repairs, tax on, 28. 

Representation and taxation, 68, 110. 

Reprisals, 615. 

Residents, defined early in Great Brit- 
ain, 625. 

Retroaction in taxation, 319. 

Revenue, definition, 247 ; source of 
State, 202. 



Revenue commission, United States, 
19-60. 

Revolution, French, 128. 

Rhode Island, opposes impost, 578 ; 
tax provisions, 398. 

Rome, assessments, 97 ; bachelor tax, 
95 ; destruction of industry, 96 ; dis- 
tribution of corn, 94; legacy tax, 
89 ; mortgages, 480 ; publicans, 71, 
91 ; provincial taxes, 93 ; taxation, 
88, 518. 

Rosetta stone, 153. 

Russia, excessive taxation in, 227. 

Salt monopoly in China, 78 ; taxation 
of, in France, 121 ; in India, 165. 

Say, Leon, on income tax, 4, n. 

Scutage, 108. 

Securities, situs of, 457 ; taxation of, 
634. 

Seligman, E. R. A., on general prop- 
erty tax, 428. 

Servitude, idea of, 444. 

Sharswood, on security, 250. 

Sherman, Isaac, tribute to, 61. 

Shipping, taxation of, 412. 

Sicilian Vespers, 67. 

Silence des grenouilles, 123. 

Silver, Federal tax, 265. 

Single tax, 633. 

Situs of debt, 498 ; personal property, 
406. 438 ; vessel, 448. 

Smith, Adam, maxims of taxation, 
385 ; on diffusion of taxes, 598, n. 

Source of income, 535, n. 

South Africa Company, 248. 

Spain, taxation of Cuba, 14. 

Special commissioner of revenue, 38. 

Spencer, Herbert, on right to tax, 223. 

Spirits, distilled, consumption in 
United States, 51 ; profits to distil- 
lers, 31 ; taxation of, in United 
States, 11, 41-56. 

Stamps, use of, 41, 56 ; duties in Unit- 
ed States, 618. 

Stare decisis, 7. 

State and taxation, 222 ; instruments 
exempt from taxation by the Gen- 



648 THE THEORY AND PRACTICE OF TAXATION. 



eral Government, 277 ; paternalism, 
5 ; tax commissions, 427. 

Statistics, want of reliable, 35. 

Story, on limitations on taxation, 301. 

Strachey, Sir John, on opium, 176. 

Subsidy, 382. 

Suffrage and taxation, 552; poll tax, 
335 ; universal, 3, n. 

Sugar, bounties on, 299, 345. 

Sumptuary laws, 256. 

Switzerland, alcohol monopoly, 187; 
budget, 185 ; constitution, 182 ; cus- 
toms duties, 186 ; double taxation, 
194; local taxes, 193; progressive 
taxation, 191, 523, 534; property 
tax, 190. 

Taille, 119, 443. 

Tallies, 109, n. 

Tariff and consumption, 576 ; prices, 
577 ; protective, 295, n. ; wages, 60 ; 
measure drafted, 59 ; who pay 
duties, 578. 

Tax, definition, 200; alienation of 
power, 279 ; direct, in law, 357 ; 
evasion of, 50, 328; general prop- 
erty, 392 ; limitations on power, 
301. 

Taxation and anthropology, 72; de- 
mocracy, 16, 115; morality, 5, 214, 
327 ; protection, 315, 346 ; represen- 
tation, 68, 286; spoliation, 570; a 
science, 12, 199 ; best methods, 603 ; 
definition, 204; double, 408, 438, 
634; discriminating, 386; extra- 
state, 310; in literature, 73; his- 
tory, 74 ; limitations on, 230, 277 ; 
literature of, 63 ; multiple, 533 ; op- 
pressive, 4, 13; origin, 224; perver- 
sion, 267 ; proportional, 320 r pro- 
duction, cost of, 390, 583; public 
purposes, 287 ; revenue, 248 ; rules 
and maxims, 284, 385 ; sphere of, 
226 ; stimulus to industry, 217 ; sub- 
jects of, 384 ; unequal, 323, 565. 

Taxes, benefits from, 9 ; diffusion of, 
569 ; direct and indirect, 340 ; di- 
rect, unpopular, 352 ; indirect, and 



monopolies, 349 ; cost of collecting, 
347 ; objections to, 343 ; war, reduc- 
tion of, 40. 

Taxpayers, defaulting, 403; number 
of, 571. 

Tewlik Pasha, 143. 

Thiers, Adolphe, on diffusion of taxes, 
599, n. 

Titles to property, 467. 

Tobacco regime, 608. 

Toll, 382. 

Tolstoi, on wealth, 69. 

Tooke, John Home, 527. 

Torture, 430. 

Transit dues, 609. 

Turks, conquests of, 99. 

Tweed, William M., public interest 
in, 572. 

Tyler, Wat, 401. 

Uniformity of taxes, 236, 322. 

United Kingdom, 550. 

United States, cost of the civil war, 32 ; 
dependence on the tariff, 611 ; direct 
taxes, 359 ; financial history, 20 ; in- 
come tax, 528, 545 ; indifference to 
taxation, 64; internal taxes, 618; 
local taxation, 622; prices in war, 
32; protection, 612; revenue, 15, 
202; tariff of 1897, 612. 

Vauban's Dixme Boyale, 125. 
Vinton, Lindley, 59, n. 

Wages and tariff, 60. 

War and origin of taxes, 224. 

Wealth, prejudice against, 69; pro- 
duction and distribution, 2. 

Welfare, general, 237. 

West, Max, on inheritance tax, 621. 

Weston vs. City of Charleston, 273, 
279. 

White, Edward D., on option bill, 
261, n. 

Window tax in France, 519. 

Wine, heavy taxation in France, 76. 

Zaccheus, a publican, 71. 



I EJe '32 



